What Is Relative Strength (RS) and How I Use It to Pick Swing Trades
Relative strength compares a stock's 20-day return against SPY. A plain definition, how Marc Chow scores RS for swing entries, and why RS beats watching price alone.
Relative strength (RS) is a stock’s return measured against a benchmark — for my swing trading, SPY over 20 trading days. A stock can rise and still be weak if SPY rose more; RS separates “going up” from “going up harder than the market”. The gap between those two is where swing profits live, because the middle of a move belongs to the names the market is actively choosing, not the names drifting along with it.
Key Takeaways
- RS is a comparison, not an indicator value: stock return minus benchmark return.
- 20-day RS vs SPY matches the swing-trading horizon.
- Positive RS in a flat market is the strongest single filter in my checklist.
- RS measures choice, not motion — the market is choosing this name over others.
How RS is calculated
The arithmetic is deliberately simple: take the stock’s percentage return over the last 20 trading days, take SPY’s, subtract. A stock up 6% in a market up 2% has RS of +4. The stock up 6% in a market up 9% has RS of −3 — and it is the second stock that fails my filter, despite the pretty green chart.
I read RS over 20 days as a plain return difference against SPY — the stock’s return minus SPY’s, no ratio, no weighting. That is the same RS-20d figure quantorb computes for every S&P sector and every stock, so the number I act on is a number I can go back and check.
How I read an RS score
I treat RS as a ranking, not a trigger. Positive RS puts a name on my watchlist; a trend check and a money-flow check decide whether I trade it. What I am looking for is persistence: a name that has held positive RS through a sideways week is being accumulated. A name that spiked to high RS on one earnings pop is not — that is a single event, not strength.
Why price alone misleads
Price only answers “did it go up?” RS answers “compared with what?” — and the second question is the one that matters. On a strong market day almost everything is green; a trader watching price alone will read the tide as skill. On a weak day almost everything is red; the handful of names holding positive RS are being bought for a reason the tape is too noisy to show. That is the whole trick: RS finds the names behaving differently from the market, and difference is where information lives.
Questions about relative strength
Is RS the same as RSI?
No — common mix-up. RSI is an oscillator of a stock's own up/down days; RS is a return comparison against a benchmark. RSI can say a stock is overbought while RS says it is barely keeping pace with the market. I use RS for selection and MFI for timing; RSI does not appear in my checklist.
Why SPY and not the stock's own sector?
SPY answers "is this name worth owning instead of just owning the market?" — which is the question that justifies the trade. Sector-relative strength is useful for choosing *within* a group, but the first hurdle is beating the thing anyone could have bought with one click.
What RS number do you require before entering?
I work to the 30% and 70% band. A name has to sit in roughly the top 30% of my universe on RS to stay in contention, and I leave the bottom 30% alone. Most textbooks tell you to use 20% and 80% instead. That is the safer cut and it will cost you nothing but opportunities — a strict safety gate like that filters out a fair number of swing setups that would have worked. These are ranking bands I use to sort a list, not a formula that decides anything for me; once a name is in the band it still has to pass the trend and money-flow checks before it is a trade.
Educational notes on my own process, not investment advice. Trading involves risk of loss.
