Ask Colin

I have recently subscribed to your web site to review the many articles you have written; I have also found your video an excellent learning tool. In the article Go With the Strength in December 2000 Shares magazine, you said that "A better way to compare a group of stocks is to use the charting software to mathematically re-base each of the relative strength lines to the value 100 a the beginning of the chart. It will then be possible to compare the changes in relative strength between the various stocks, as shown in the Re-Based Relative Strength chart." In Stan Weinstein's Secrets for Profiting in Bull and Bear Markets, the chart examples are Mansfield Charts. These charts are mathematically adjusted so that no matter what price the stock is trading, the same percentage increase/decrease is indicated by the Relative Strength Indicator, so that all stocks may be compared on an equal footing. My question to you is how do you re base the Relative Strength Indicator to achieve this?

I have recently subscribed to your web site to review the many articles you have written; I have also found your video an excellent learning tool. In the article Go With the Strength in December 2000 Shares magazine, you said that "A better way to compare a group of stocks is to use the charting software to mathematically re-base each of the relative strength lines to the value 100 a the beginning of the chart. It will then be possible to compare the changes in relative strength between the various stocks, as shown in the Re-Based Relative Strength chart." In Stan Weinstein's Secrets for Profiting in Bull and Bear Markets, the chart examples are Mansfield Charts. These charts are mathematically adjusted so that no matter what price the stock is trading, the same percentage increase/decrease is indicated by the Relative Strength Indicator, so that all stocks may be compared on an equal footing. My question to you is how do you re base the Relative Strength Indicator to achieve this?

We do not know exactly how the Mansfield Charts are constructed, though one can make a guess. However, that is not important. What is important is that we make a valid comparison.

The software that I use, Insight Trader, allows us to chart a relative strength line for any stock against any index or other stock. The basic formula is simply the stock price divided by the index.

Now, if all we want to know is whether the relative strength is rising or falling, that is all we need.

The other question, though, is to compare two or more stocks we may be considering. If one's relative strength is rising and the others are falling, then that is again all we need to know. It is the only one to meet the Weinstein criteria.

What you seem to be considering is something that I think goes beyond Weinstein's idea and that is to compare two or more stocks whose relative strengths are all rising. Maybe to see which is strongest. To do this, we could take the Mansfield route and construct all the relative strength charts as an index. However, Insight Trader approaches it differently. What we do is to take the usual relative strength calculations and instead of them all starting at different points, depending on their price, the software allows us to recalculate them all starting from 100. This enables us to compare them.

There are two ways we can compare them. One is by plotting each relative strength chart as a semi-log chart. This means that the movement of one can be compared to the others in percentage change terms. The other is by overlaying them on the one chart. They will all start from 100, so we can readily see the comparison. If the dynamic range is great, it would be best again to use a semi-log chart for the overlaid chart.

For February 2002 Shares magazine, I have just written a further article on this matter and have some rebased relative strength overlaid charts in it that illustrate this last method.

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