School Corner
There are five situations in relation to the RSI which can occur:
There are various ways to use the indicator, here are a few techniques:
• The security is rising faster than the base security: outperform
1. Buy stocks with strong relative strength (outperform) after a correction
• The security is rising while the base security is falling: outperform
Strong relative strength means the relative strength is rising. If a stock has a tendency to outperform the FTSE 100 over a six-month period or more, it is a good bet because the chances are that it will probably continue to outperform the index — a force in motion and all that. In this situation we would buy the stock on a pull back to the 50-day moving average. A recent example was Associated British Foods:
• Both the security and the base security are moving up or down by the same percentage: neutral • The security is falling faster than the base security: underperform • The security is falling while the base security is rising: underperform
CHART - Associated British Foods
56 | www.financial-spread-betting.com | February 2013