Within this report I'll show you how you can find these
profitable trading opportunities with MetaStock. You'll be able
to make use of techniques usually only used by professional
traders, such as the Relative Strength Comparison. The basis of
the RSC (Relative Strength Comparison) is found in sector
analysis.
What is Stock Market Sector Analysis?
Stock market sector analysis is a top down stock selection
method. Stock market sectors that are expected to outperform the
rest of the market are identified, through methods such as the
Relative Strength Comparison, and then stocks from those sectors
are selected. The idea is that stocks selected from superior
stock market sectors will perform in the same fashion as their
sectors. This follows the principle that money generally flows
from under-performing areas of the market to more profitable
areas, a truth that has be tested by many traders.
"My studies have consistently shown that two equally bullish
charts will perform far differently if one is from a bullish
sector while the other breakout is in a bearish group. The
favourable chart in the bullish group will often quickly advance
50 to 75 percent while the equally bullish chart in a bearish
group may struggle to a 5 to 10 percent gain." - Secrets for
Profiting in Bull and Bear Markets, Stan Weinstein, (McGraw-Hill
1992)
How can you use Stock Market Sector Analysis within MetaStock?
To identify stock market sectors that will outperform the
market; you must first compare the strength of each sector
against a chosen market index such as the S&P/ASX200 for the
Australian market, or the Straits Times Index for Singapore.
Once you've done this, you must rank the stock market sectors,
and discover which ones are performing the strongest. After the
strongest stock market sectors have been identified, you can see
which securities are within the sectors. These individual
securities can also be ranked against their respective stock
market sector, which effectively allows you to single out the
best performing stock market sectors.
The Relative Strength Comparison (RSC) is the best way to
compare the strength of one security against a market index. The
RSC compares a security's price change with that of a "base" or
benchmark security.
When plotted on a chart, the RSC line can be interpreted as
follows:
- An increasing RSC indicates that the security is performing
better than the base security. - A RSC that moves sideways
indicates that both securities are performing the same. - A
decreasing RSC indicates that the security is performing more
poorly than the base security.
It is important to note that just because the RSC may be rising
in value, the security isn't necessarily rising in value as
well. This rise only indicates that the security is performing
better than the base security. For example, a security may be
falling in price, but it may not be falling as fast as the base
security. This would result in a rising RSC. Conversely, if the
RSC is falling the security may not be reducing in value;
instead it may be that it's price is increasing at a slower rate
than the base security.
In the second and third sections of this article, you will learn
how to use the various features of Metastock to calculate the
RSC, and locate the best stock market sectors to choose
securities from.
David Jenyns, leading expert in designing profitable trading
systems, MetaStock website offers a huge free collection of
trading related tips and tricks. http://www.meta-form
ula.com/subscribe
About the author:
READ my articles; you'll FIND the most powerful insider trading
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