Relative strength investing techniques can be profitable during all markets, especially when the markets are turbulent as in the past few years. The results you can expect when the markets are swinging depend upon how you approach RS and the particular formulas you select. In my experience and from extensive testing I have found that certain formulas generally provide the best results. These different RS formulas also work best with different types of groups of ticker symbols. For example mutual funds are generally best analyzed with Alpha.
The caveat however, is that RS must be used as part of an overall package. While RS is the centerpiece, like a quarterback in a football game or a pitcher in baseball, the complete team is required to produce a winning investment strategy. The point is, just saying you are going to use relative strength investing is good, but only the beginning. Just as the same size shoe doesn’t fit everyone, nor does the same shoe style work for everyone, there is not one-size fits all RS settings. Only after knowing what your objectives are and what type of investments you want to make, can you then test to find the settings that will work best for your group, your 401k, or any other group of funds, ETFs, or stocks.
I pulled these comments from my book, “Investing Guide for Retirement”, as a reminder that simply saying I am going to invest based on momentum or relative strength is just the beginning. Understanding the different types of RS and which to use with your investment group is just the beginning. The same applies for all other buy-sell rules.