Relative Strength

Written By
Paul Tracy
Updated November 4, 2020

What is Relative Strength?

Also called price persistence, relative strength is the tendency of a security's price to follow the trend of an index like the S&P 500. It is a measure of momentum.

How Does Relative Strength Work?

To illustrate, let's assume the price of Company XYZ's stock has been consistently rising over the last six weeks. The stock was at $10 at the start of the six weeks; it is now at $18 -- an 80% increase. During the same period, the S&P 500 increased by 15%. If relative strength holds true, XYZ's stock price should continue to increase until it encounters a resistance line.

[InvestingAnswers Features: Swing Trading Support and Resistance Secrets]

Why Does Relative Strength Matter?

The basic idea behind relative strength is that if Company XYZ's shares have been increasing (or decreasing) over the last several weeks, the shares will likely continue on the same trend. Although relative strength can provide investors a reason to sit back and "ride" a stock if it is heading up (or dump a stock if it is heading down), relative strength might also signal that a stock is becoming overpriced (or underpriced, if the trend is heading in the other direction). One reason for this is that relative strength is measured exclusively on historical performance and thus does not account for future performance.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Relative Strength.
Be the first to ask a question

If you have a question about Relative Strength, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Relative Strength, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Relative Strength

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms