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fiorenzo  
#1 Posted : Monday, February 21, 2005 2:52:54 PM(UTC)
fiorenzo

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I wonder if there is a way to "normalize" the Relative Strength Comparative function so to have more meaningful, consistent values. In my opinion the RSC cannot be of much use as it is; infact values between different charts (specially those with different scales) cannot be directly compared (imagine dividing a security with a value of 1.000 with one having a value of 10). I tried to overcome the problem dividing the cumulative values of both securities' ROC by the formula: cum(roc(c,1,%))/cum(roc(p,1,%)), but I end up having a line with some weird spikes. Is there any solution available? Thank you! Fiorenzo/Italy Metastock 8.01
Patrick  
#2 Posted : Wednesday, February 23, 2005 3:52:01 PM(UTC)
Patrick

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Quote:
imagine dividing a security with a value of 1.000 with one having a value of 10
Dividing the rate of change of a $10 stock to an $500 index will be just as good/bad as dividing the price of the securities. If the stock moved up 50 Cents and the Index move up 50 cents what would that tell you. I think I understand your concern ... Let me think about it. I have had a couple of days off and have a lot of work to do. But I will come back to the forum when possible.
fiorenzo  
#3 Posted : Wednesday, February 23, 2005 5:45:16 PM(UTC)
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Hi Patrick, and thank you for you "concern". I might have come up with a simple new formula: Cum(ROC(C,1,%)-ROC(P,1,%)) As you see there is a minus instead of a divide, but the result could be interesting although the line generated is much similar to that of RSC...similar but not identical. I still wonder why, and if that can provide better signals. I know, by the way, there is a plug-in (not free) which promises to give what I am searching for, but it all may be as simple as the above... Take care :wink:
Patrick  
#4 Posted : Monday, February 28, 2005 4:12:56 PM(UTC)
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Hi Fiorenzo, I have a few questions about relative strenght and I hope you can help me :D First of all substracting the precentages should do the trick but why do you cumulate it, rather than doing an average over x amount of periods? Also I'm interrested to find out what you are looking for in the indicator itself. The way I understand people use indices is by making sure the trend of the index matches the trend of the stock they are looking at ( as confirmation I guess that trend is up or down ) . When you look at the relative strenght comparison, what does it tell you ( I guess this my question ), how do you interpret it? Thanks, Patrick
fiorenzo  
#5 Posted : Tuesday, March 1, 2005 12:10:14 PM(UTC)
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Hi, Quote from the Metastock help: "The Relative Strength Comparative indicator compares two securities to show how the securities are performing relative to each other. The result of this division is the ratio, or relationship, between the two securities" Instead I am trying to find a "price adjusted equity line". in other words a clearer picture of an index vs. its currency Imagine an investor having to decide upon an investment on the S&P while the Dollar is decreasing. I guess he would have to visualise an equity adjusted to the dollar index. The same with Gold: what if it goes up 5% and the dollar would go down 6%?. Gold is traded in US$ per ounce; and I'd better chose a different solution for my money. Extending this concept further I am wondering if such a line could provide interesting graphic patterns, or if you could draw trendlines of any interest on it etc. Your suggestion of doing an average over x amount of periods of the ROC is quite interesting, but, in my opinion, it has the limitation of providing an optimized (x amount of periods) of the line, instead of an objective picture. Bye, Fiorenzo
Patrick  
#6 Posted : Tuesday, March 1, 2005 3:11:15 PM(UTC)
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Thanks for your answers.
Jose  
#7 Posted : Friday, March 10, 2006 12:31:57 PM(UTC)
Jose

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Normalizing Relative Strength Comparative studies involves more than just normalizing the two original securities - they both need to be in sync as well. From the URSC tool-kit's documentation:
Quote:
RSC traditional problems Traditional Relative Strength Comparisons to another data set such as an index, have many problems: RSC indicators don't plot any meaningfully consistent values, and thus values between different charts (specially those with different scales) cannot be directly compared; The RSC starting zero-point - which is important in determining the current RSC level - shifts according to the amount of data available for each chart; RSC indices have to be manually chosen for each new chart, which means automatic explorations and systems based on traditional RSC's are not possible. URSC solutions All the above shortcomings (and more) are addressed by the URSC plug-in kit: • Normalized values with true % levels that are directly comparable to all charts; • Adjustable common zero-starting data points, independent of any missing chart data; • Automatic selection of GICS Sector Indices, to match each stock; • Automatic GICS vs major market index Relative Strength Comparisons; • Automatic display of GICS Industry numbers for current chart; • Chart Experts can display above/below strength zones and URSC-EMA breakout signals; • Complex & detailed URSC Explorations of all stocks vs major indices; • URSC Explorations of all stocks vs their respective GICS sector indices; • Complex Exploration filtering of any combination of selected GICS Industry Groups. • Create your own favourites lists - safer, easier and more useful than MetaStock's volatile-storage method.
jose '-)
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