Relative strength is one of the most misunderstood ideas in the market, largely because its name overlaps with an unrelated indicator. Properly understood, relative strength has nothing to do with whether a stock went up or down in absolute terms — it measures how a stock performed relative to the rest of the market. A stock that fell 5% while the broader market fell 20% isn't a loser at all; it's showing enormous relative strength, and that distinction matters far more than the raw price move.
This isn't a fringe idea. Decades of academic momentum research and generations of champion traders point to the same conclusion: stocks that are already outperforming their peers tend to keep outperforming for a meaningful stretch of time, and stocks quietly underperforming while the crowd isn't looking tend to keep lagging. Relative strength is simply the tool for measuring that outperformance directly, rather than guessing at it from a price chart alone.
Search results on this topic are dominated by articles that use "relative strength" and "RSI" interchangeably. They are not interchangeable, and mixing them up leads to genuinely different — sometimes contradictory — conclusions about the same stock.
An RS rating is a cross-sectional percentile. It compares one stock's price performance over recent months against every other stock in the market and answers a single question: what is leading? A rating of 95 means that stock has outperformed 95% of the market over the period measured — nothing more, nothing about how "overbought" it might feel today.
RSI (the Relative Strength Index) is a completely different calculation. It's a 14-day momentum oscillator that looks at a single stock in isolation, measuring the speed and size of its own recent price swings on a 0–100 scale. It answers a different question entirely: is this move stretched right now? RSI says nothing about how that stock compares to anything else in the market.
Because they measure different things, a stock can carry an RS rating of 95 — genuine market-leading strength — while its RSI reads as oversold after a short pullback within an uptrend. Both readings can be true at the same time, and both are useful, but only if you know which question each one is actually answering.
| RS rating | RSI | |
|---|---|---|
| Compares | One stock against the whole market | A stock against its own recent history |
| Scale | 1–99 percentile | 0–100 oscillator |
| Time frame | Multiple months | 14 days |
| Answers | "What is leading the market?" | "Is this move stretched right now?" |
The mechanics are straightforward, even if the underlying research isn't. Every stock in the ASX universe is ranked by its price performance over recent months, and that ranking is converted into a percentile from 1 to 99. A rating of 90 means a stock has outperformed 90% of the rest of the market over the period measured; a rating of 10 means the opposite. It's a purely relative measure — a stock can have a high RS rating in a falling market simply by falling less than everyone else, which is exactly the point.
The research-backed edge in relative strength was never about catching a single high reading — plenty of stocks spike to a high percentile for a week and then fade straight back into the pack. The signal that actually correlates with genuine market leadership is persistence: a stock holding an elevated percentile rank for weeks or months at a stretch, not just touching it once.
The flip side matters just as much. A stock's relative strength fading during what still looks like a healthy rally in price is one of the earliest warning signs available — often showing up well before the price chart itself gives any hint that something has changed. Watching the trend of the rating over time, not just its level on any given day, is where most of the practical value sits.
A stock's percentile against the entire market is a useful starting point, but it can hide a more revealing comparison: how a stock stacks up against its true peers. A gold miner ranked against the whole ASX is being compared to banks, retailers and everything else at once, which can mask genuine leadership — or weakness — within its own corner of the market. Ranking a stock against the other companies actually competing in its space, rather than the market as a whole, is what theme relative strength is for. It sits alongside whole-market relative strength rankings as a second, narrower lens on the same underlying idea.
In practice, relative strength works best as a filter rather than a standalone signal. Screening for market leaders — stocks with an RS rating of 70 or higher, and ideally 90 or above, per the published trend-template practice — narrows the universe down to the names actually outperforming, before any other analysis begins.
From there, persistence is worth tracking over time rather than checking once: a stock that has held a high percentile for months is telling a very different story to one that just touched it yesterday. And relative strength is rarely used in isolation — pairing it with base and pattern analysis gives both the "what's leading" and the "is this a sound entry" halves of the picture at once, rather than relying on either alone.
General information only, not financial advice —see full disclaimer.
Sign up free and explore the platform today. When you want the full toolkit, Trader and Pro are a click away — monthly billing, no lock-in, cancel anytime.
Sign Up FreeLogin