Relative Strength

Relative Strength is a trading technique in which the trader will buy an asset and continue to add to the position while the price of the asset continues to rise in value.

With the Relative Strength trading strategy the entire position will be sold as soon as it is determined that the asset is beginning to lose value or reverse in direction.  Trader’s often times use the relationship between the individual asset price’s percentage gains compared to the percentage gains of a related index.  If the individual asset’s gains exceed the index’s gains the trader will continue to add to the position.  As soon as the individual asset’s gains lag relative to the index’s gains the trader will sell off the entire position.