Benefits of Relative Strength Momentum Investing

The top FIVE benefits of using relative strength momentum (RSM) investing are often overlooked as people get lost in the desire to simply buy and make money with stocks, ETFs, or mutual funds. With a name like relative strength momentum (which sounds intimidating) and the fact that many people simply don’t understand relative strength momentum they shy away from investing altogether.

RSM is a statistic that measures the acceleration of the Relative Strength of a stock, mutual fund, or ETF. The higher the Fast Moving Average moves above the Slow Moving Average the greater the ranking value.

Analysis based on RSM takes momentum analysis a step further by performing a comparative analysis of how strong the momentum of the stock, ETF, or mutual fund is, and how strong it is in comparison to other stocks, ETFs, or mutual funds. This compelling RSM analysis focuses on symbols that are strong and that have the potential not just to remain strong but to continue rising.  And when and if the stocks, mutual funds, or ETFs falter, the RSM analysis signals that it’s time to sell.

The FIVE Benefits of Relative Strength Investing:

Benefit #1:

RSM is one of the most proven methods of technical analysis for finding consistent winning investments. A multitude of books have been written about RSM, including Michael J. Carr’s definitive guide: Safe Profitable Investing with Relative Strength.

Benefit #2:

RSM works for all types of investing:

Short-term; Long-term; Conservative; Moderate; Aggressive; Stocks; ETFs; Mutual Funds

Benefit #3:

The formulas that provide the best results can be implemented even if you are not technically savvy or a math expert because they are part and parcel of readily available investment software.

Different formulas, all related, can help you decide which RSM method fits your goals and personality. Michael J. Carr tested seven different formulas for relative strength:

  • Alpha
  • Price/Moving Average Ratios
  • Ratios of Multiple Moving Averages
  • Averaging Different Time Periods
  • Normal Rate of Change (ROC)
  • Back-weighted ROC
  • Front-weighted ROC

Benefit #4

Analyzing investments with alpha or any of the other RSM methods can easily be combined with other buy/sell rules. These buy/sell rules include

  • Stops
  • How long to hold a position
  • Ranking to be sure the position is high within your group of symbols

Benefit #5

You can do easy technical analysis with or without Standard Deviation (SD). Standard Deviation is the amount by which the price of a symbol varies on average over a particular period of time. By adding SD to the analysis you can, in effect, automatically be more conservative. Actually, with or without SD you can customize any RSM calculation (like Alpha) in order to meet your goals for conservative, moderate, or aggressive investing with the right personal investment software program.

While relative strength momentum investing sounds intimidating the benefits lead to long-term growth for your portfolio, particularly is your investment software program transforms to RSM with a few clicks of the mouse allowing you to compare potential profits and risks.

 

Dominick is the designer of the investment program Dynamic Investor Pro, an investment software used by individual investors and professional investment advisors for stocks, ETFs or mutual funds.

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