Why Relative Strength Investing Wins in Turbulent Markets

Relative strength investing techniques can be profitable during all markets, especially when the markets are turbulent as in the past few years. The key is to use RS properly as I wrote previously.

What kind of results can you expect when the markets are swinging depends 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:

ETFs – best formulas (in order of performance):

  • Relative Strength Momentum with Standard Deviation
  • Relative Strength Momentum
  • Alpha

Stocks – best formulas (in order of performance):

  • Relative Strength Momentum
  • Relative Strength Momentum with Standard Deviation
  • Return

Mutual Funds – best formulas (in order of performance):

  • Alpha
  • Alpha with Standard Deviation
  • Relative Strength Momentum

What kind of results can you expect? This is the bottom line question. But safe investing with relative strength requires more than just the RS analysis. You might say RS alone is just one ingredient in the safe investing package.

Without optimized buy – sell rules covering specific trading factors of your group of potential investments you might as well just throw a dart at your list of stocks or funds.

The complete package in any good investment software will also have ingredients such as:

  • Stops
  • Ranking
  • Hold periods
  • Time period of analysis
  • Market Exit signal

But again what kind of results can you expect?

I know, from a survey that I took covering the year 2012, the respondents reported:

75% reported gains 8% or higher

33% said gains were 13% or higher

19% reported gains of 16%+

In addition, the top 10 RS strategies that I follow produced 2012 gains of 24% – 51%. Six of these strategies involved stocks, two involved ETFs and two were mutual fund groups.

Over the past three years I have tracked about 20 groups of stocks, ETFs and mutual funds. I found that:

Stocks – the vast majority of these groups walloped the S&P500 with gains ranging from 30% to 504%

ETFs – the vast majority best or walloped the S&P500 with 3-year gains ranging from 25% to 103%

Mutual Funds – Almost every group and strategy beat or clobbered the S&P%00 results with their 3-year results ranging from 26% to 120%.

What does this mean?

In a nutshell, proper relative strength momentum investing will return outstanding results, excellent growth and profits for both retirement accounts and regular wealth building investment accounts. 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.

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