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Relative Price Performance

Hi!

I want to use a so-called “relative strength indicator” (I’m, not talking about Wilder’s RSI indicator) to measure the price performance of a stock vs. the price performance of an index or a sector. As I understand it, in StockCharts, there are three ways of doing it. This query is about the first method. I need to better understand the other two methods before using them.

One can create a chart using a “ratio ticker symbol” such as IBM:$SPX. In the chart, this would show the price of IBM divided by the price of the $SPX. Adding an MA(50) would show the trend. Uptrends mean that, price-wise, IBM’s is doing better than the $SPX (either rising faster or falling slower) and downtrends mean that IBM’s is doing worse than the $SPX (either rising slower or falling faster).

More importantly, to compare two stocks within the same sector, the last value of MA (50) tells the story of, more or less, the last three months. Am I right?

Thank you!

Dr. T


Comments

  • markdmarkd mod
    edited October 2018
    Yes. The MA is the summary of values in its look back period.

    And, you are correct that the ratio indicator for RS is based on dividing the values of the symbols.

    A couple of notes (for others if you are already aware).

    If you use the "Price" indicator, you will get the same plotted value no matter the length of the chart, which is the simple ratio of the two prices.

    If you use the "Price-Performance" indicator, the plotted value will vary depending on the length of the chart, and it is plotted as a per cent. The per cent value represents how much the first symbol has out-performed or under-performed the second (base) value since the first bar in the chart.

    The "Price-Performance" method makes it a little easier to compare one stock to another over the same number of bars (e.g., ABC is up 7% in the last 9 months, compared to 12% for XYZ).

    As for MA length, a calendar month has 19 to 23 trading days, depending on the number of days in the month (28, 29, 30 or 31) and holidays in the month (none, 1 or 2). Some people use 20 to represent a month (four weeks times 5 days in a week). I like 21 for the indicators I use, based on 251 trading days in a year (52 wks x 5 days = 260-9 holidays = 251) divided by 12 months = 20.9 days=21). So for me, three months is 63 days and that's the MA I use for RS. But 50 is more popular and either will convey useful information. My impression is, the shorter MA will signal earlier, but yields more whipsaws (so max gain on a good trade, but more small losses), while the longer is later but fewer false alarms (fewer forced losses but less profit on good signals).
  • Dear MarkD,

    Thank you for your reply!

    I read about the "Price" and the "Price Performance" indicators but I was somewhat confused and I have to re-read the material. Am sure I'll have questions about the two.

    Dr. T
  • I just ran across this question and I'm trying to do something similar. I'd like to add Price-Performance to every stock chart (my default), showing the current stock I'm looking at vs. $SPX. How do I do this? I can't figure out how to input the parameter to reference the currently displayed ticker vs. a fixed "hard coded" symbol.

    So, if I am looking at MSFT the parameter would be MSFT:$SPX. when I shift over to AMZN, the indicator should now show AMZN:$SPX by default. I can't figure out how to do this - not possible?
  • Okay, I may have answered my own question. For some reason it is "sticking" now. When I saved the "hard code" that I described above buy inputting MSFT:$SPX into the parameters for a MSFT chart and then saved it as my default, the parameters are changing properly to match the chart. I'm not sure what I did differently before, but it seems to work now. :o
  • markdmarkd mod
    edited March 14
    Yes, I don't think it's you, I think there are some (possibly undocumented) behaviors going on when you use Price-Performance, and possibly other indicators.

    As you note, if you use Price-Performance and include the symbol for the master chart, then Price-Performance will always use the master chart. But, if you use another symbol other than the master, say, an industry index symbol like $DJUSSW (Dow Jones US Software), then for any other symbol you enter for the master, Price-Performance will always show $DJUSSW:$SPX.

    However, you can overrule the automatic behaviors with pseudo-symbols ($SYMBOL, $INDUSTRY, $SECTOR) so you know what is happening for sure. The pseudo-symbols read the master chart for the stock symbol, and reference the chart database for the symbol's sector and industry.

    So, if you are making a chart style to save permanently as your default or an alternative style, use $SYMBOL:$SPX, or $INDUSTRY:$SPX or $SECTOR:$SPX instead of the master chart symbol for parameters. You could also do $SYMBOL:$INDUSTRY to see how the stock is doing vs. its peers, or $SYMBOL:$SECTOR to see how its doing against the stocks in its sector.

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