The Stockbee ran a piece on relative strength the other day. It was a compendium of academic citations on relative strength and some endorsements by other researchers like Ned Davis. That alone should be enough to get investors to take it seriously. The quote that caught my eye, though, was from former hedge fund manager, Mark Boucher, detailing his research findings:
In the mid- to late-1980s, I was involved in a large research project with Stanford Ph.D., Tom Johnson and his graduate students. Our objective was very similar to what every trader is obsessed with today: We wanted to determine which tools actually made money in stocks, bonds, currencies and futures. I am pleased to report that we found what we were searching for. We measured the performance of all indicators that had results we could easily measure. These included: PEs, P/Ss, volume accumulation, volatility, trend-following tools, earnings models, earnings growth and momentum, growth rates of earnings, projected earnings growth, value compared to earnings growth, chart patterns, pace of fund accumulation of the stock, capitalization—you name it.Of all the independent variables we tested, Relative Strength (RS) was the most consistent, reliable and robust. It single-handedly improved profit better than anything else we tested.
I didn’t even have to add the bold. Stockbee did that for me. Value is a very well-known return factor; I am always surprised that relative strength is almost completely unknown outside the cognoscenti.
And as Ivan Hoff mentioned recently, it’s all relative. He included a nice video of Dan Ariely describing how many (if not all) behaviors are based on a relative measure. You can find Ivan’s post here http://goo.gl/jswN6
Best regards. Keep up the great work!