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Execution · Lesson 6

Relative strength: the cheat code that's legal

You will stop asking only 'is it going up' and start asking 'is it going up more than everything else.'

intermediate13 min read · +50 XP
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The short version

  • Compare each name to the index, not just to itself.
  • Trade the strongest on up days, the weakest on down days.
  • It tells you WHAT to trade, never WHEN — levels and risk still rule.

Do this before the next open

During the next session, at the thirty-minute mark, rank all seven names by percent change from the open. Write down the strongest and the weakest, then check at the close whether they held their rank.

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Relative strength compares one instrument's move to another's over the same window. It is not the RSI indicator — that is something else entirely. This is simple comparison, and it is one of the highest-value reads available to a NASDAQ trader.

The read

If the index drops one percent off the open and a name only drops a tenth, that name is being held up by real buyers who are absorbing a market-wide sell-off. If the index bounces, that name tends to bounce hardest, because the sellers were already exhausted there. The reverse applies to weakness.

How to use it

  • Trade the strongest name on up days and the weakest on down days — do not fight the ranking.
  • When the index makes a new low but a leader does not, that divergence often precedes an index turn.
  • When the index rises but the leaders lag, the move is being carried by weaker names and deserves suspicion.
  • Use the seven as your comparison set. They are the index; comparing them to it is comparing the index to itself.

The failure mode

Relative strength tells you what to trade, not when. A strong name at a terrible level is still a terrible entry. Rank first, then apply the same structure, volume, level, and risk process from the earlier lessons. The rules do not change because you found a leader.

Education only. Nothing in this lesson is a signal or a recommendation to trade. Trading involves substantial risk of loss.