THE SIMPLEST WAY TO VISUALIZE RELATIVE STRENGTH AND SECTOR ROTATION

Achieve outperformance in every kind of market

Strong Markets > Stronger Sectors > Strongest Stocks

Relative Strength and Sector Rotation.

As a trader, to make returns greater than the general market. You have to trade stocks that are performing better than the general market.

It is literally as simple as that.

For this, you need a SYSTEM to find which are the stocks, sectors, or groups that:

1. are outperforming.

2. were outperforming but now are losing momentum.

3. were underperforming but now have started to show outperformance.

You should already be in stocks from 1, avoid 2, and look for news entries in 3.

There are N different ways to find this (article coming soon). Today I am going to tell you about the simplest way to track this.

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What is relative strength?

Strength i.e. performance/returns of X in N period of time compared to Y.

X and Y can be a stock, index, or group.

N can be any timeframe. 5 minutes, 5 days, 5 weeks, or 5 years.

Which timeframe should you look at?

The timeframe that is your personal trade holding timeframe.

That for me is 15-30 days (swing trader).

So you basically plot this graph.

Return in the last 15 days (or 30, 50, 200) for all sectors (or stocks).

Here is what the Plot for the last 15-day rolling returns for different sectors looks like:

Here is the 50-day rolling return plot:

In both the plots, you will observe this:

1. In the center of the plot, there is one group (yellow line on the 15-day & blue line on the 50-day) which clearly ran up more than the rest of the pack. This was Banks (PSU rally last year).

2. There is one group (light blue in both the plots) that is rising up right now. The rise is more acute on the 15-day plot as the lower timeframe reacts quicker than the higher timeframe plot. This group is telecom.

3. Similarly, groups that start to lose momentum will have a curve that will start to fall.

The chart I have shown you is from chartink.com. But that's not important. what's important is to understand the simple logic of it. If you then have the data, you can simply plot this on an Excel sheet.

Here is the link to this chart.

https://chartink.com/dashboard/190182

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That's all for today.

before signing off I want to reiterate the importance of building a trading system. There are different moving parts to a system and hunting strong sectors and stocks is definitely one of the most important ones.

If you want my help in designing a trading system that will make you consistently profitable and avoid the pain of a large drawdown, I can do that in 2 ways:

1. The Sakatas Homma TA masterclass for beginners:

   A monster course 8-10 hours. Hourly sessions on weekends. Twice a year.

   Please register for the next batch using the link below.

   https://docs.google.com/forms/d/e/1FAIpQLScfnQA1w9WDTtTAPEHIqzkS9jhRSZFA1BZXuWRZ5JPZ3Qfu8g/viewform

   Watch my 1st session of the spring 2023 batch.

2. Homma Private Access membership:

   HPA is a subscription-based educational service (on WhatsApp). Benefits include:

   1. Daily Market Breadth Update.

   2. Access to my scanners, dashboards, and charting layouts.

   3. Weekend hourly session and Q&A.

   4. Live updates on my portfolio and the trading setup rationale.

   5. Live updates of key setups I am tracking.

Yearly membership of 12000/- INR only.

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Yours

Sakatas “systems'“ Homma.