5 Benefits of Relative Strength Momentum Investing


The top 5 benefits of using relative strength momentum investing are often overlooked in the desire to simply buy and make money with either stocks, ETFs or mutual funds. This, plus the factor that the name “relative strength momentum,” sounds intimidating and that many folks simply don’t understand it.

As I wrote previously, “Avoiding Mistakes with Relative Strength Investing”, analysis based on RSM takes momentum analysis a step further by performing comparative analysis of how strong the momentum of the stock or fund is and even better, if properly setup, how strong the particular ETF or fund is in comparison to others. This compelling RSM analysis thus focuses on ticker symbols that are strong and have the potential to not just remain strong but to continue rising; and when they falter, the analysis signals it’s time to sell.’

Benefit #1:

This is one of the most proven methods of technical analysis for finding consistent winning investments..

A multitude of books have been written about RSM, including Michael J. Carr’s definitive guide: Smarter Investing In Any Economy (currently sold out, but hopefully about to be reprinted soon).

Benefit #2:

RSM works for all types of investing:

  • Short-term
  • Long-term
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  • Moderate
  • Aggressive
  • Conservative
  • Stocks
  • ETFs
  • Mutual Funds

Benefit #3:

The formulas that provide the best results can be implemented even if you are not technically savvy or a math expert because they are part and parcel of readily available investment software.

Different formulas, all related, offer the ability to decide which way of analyzing RSM provides you the relative strength momentum investing method that fits your goals and personality.

Carr tests seven different formulas for relative strength:

  • Alpha
  • Normalized rate of change (ROC)
  • Back-weight ROC
  • Front-weighted ROC
  • Price/moving average ratios
  • Rations of multiple moving averages
  • Averaging different time periods

Benefit #4:

Analyzing investments with alpha or any of the other RSM method can be easily combined with other buy-sell rules in both personal investment software and investment advisor software.

These buy-sell rules include:

  • Stops
  • How long to hold a position
  • Ranking to be sure the position is high amongst your group of ticker symbols

Benefit #5:

You can do easy technical analysis with or without Standard Deviation (SD). By adding SD to the analysis you can, in effect, automatically be more conservative.

Actually, with or without SD you can optimize any RSM calculation like alpha to meet your goals for conservative or moderate or even aggressive investing with the right investment software.

While relative strength momentum investing sounds intimidating the benefits can lead to long term growth of your portfolio, particularly if you find personal investment software program that transforms RSM into a few mouse clicks and allows you to compare potential profits and risks.

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