How to Find Leading Stocks
- Rohit Musale, CFA
- Feb 2
- 2 min read
At least 8 out of 10 positional trades that I take, are in stocks that have a Relative Strength Rating of 80 or more.
Why?
William O'Neil, in his book "How to Make Money in Stocks", has already documented the fact that market leaders of the past have had an average Relative Strength Rating of at least 87.
If that is the case, then why should I decrease my odds of success by putting my money in anything that does not have a high Relative Strength Rating?
Mark Minervini, in his book "Trade Like a Stock Market Wizard", has given a trend template in which he recommends putting money in stocks with a Relative Strength Rating of at least 70.
Occasionally, I will drop down to a Relative Strength Rating of a minimum of 70 for swing and positional trades, but that too in stocks that are fundamentally strong, while the market is very strong.
At all other times, for all practical purposes, I stick to higher Relative Strength stocks.
I am not saying, do not put your money in stocks with a Relative Strength Rating between 70 and 80.
All I am saying is that stocks with a Relative Strength Rating of more than 80 are less risky than stocks with a Relative Strength Rating between 70 and 80.
What about stocks with a Relative Strength Rating below 70 ?
Well, I personally stay away from that universe of stocks.
I allow those stocks to show some strength before I even consider them for my watchlist.
A lot of people confuse Relative Strength Rating with RSI and Relative Strength.
Relative Strength Rating has nothing to do with RSI.
RSI is an oscillator.
The Relative Strength Rating is a proprietary rating by MarketSmith given to stocks based on their 52-week performance.
For example, a stock with a Relative Strength Rating of 87 is doing better than 87 percent of all the stocks in the stock market at the moment, based on a 52-week performance basis.
Relative Strength Rating is not the same as Relative Strength.
Relative Strength is a line on the chart.
It compares the performance of the stock with the market index.
In India, the market index is the Nifty 50.
Whereas Relative Strength Rating is like a ranking.
It is not a line on the chart.
The most basic step in swing and positional trading is filtering for watchlist creation.
I think Relative Strength Rating is a good place to start.
Especially, to find leading stocks.
Regards,
Rohit Musale, CFA
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