# How Much Does It Cost To Watch Formula 1 Relative Strength Comparison (RSC) The Key Success Tool In Trading-Part 3

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## Relative Strength Comparison (RSC) The Key Success Tool In Trading-Part 3

To create a study using RSC you must first open a base index chart, e.g. S&P/ASX200 for the Australian market, or the Straits Times Index for Singapore, which you will use to compare between market sectors. Once the chart is open, left-click on the price chart to highlight the price information. You’ll know it’s selected when a series of small black squares appear in the price structure. It is important to note that each time you wish to perform a review of this type, you must first select your base index.

Next, open the Explorer dialog box and select ‘New’ Explorer Name ‘MetaStock Guide Sector Analysis’. Then click inside ‘Column A’ and enter the following formula:

ROC(MOV((C/P),13,S),1,%)

This formula calculates the rate of change, as a percentage, in the relative strength of the components against the underlying index over a 13-week period. It may seem complicated but let’s break it down into manageable chunks, starting with the innermost parentheses first:

IC/P is the relative strength (or RSC component) of the components tested against the safety baseline.

The method of calculation is to divide the closing price of the sector, by `P`, where `P` is the base index you noted before doing this study.

(MOV((C/P),13,S) calculates the moving average of RSC over a 13-week period.

ROC(MOV((C/P),13,S),1,%) calculates the rate of change of the RSC moving average, in other words, the amount the sector has moved up or down as a percentage.

Looking back at MetaStock, notice that you haven’t entered anything in the filter tab. This is because you only use the filter tab when you want to remove certain qualifications from your review results. Since you are not looking to exclude any components, but to measure all components, you should leave the filter empty.

Before you run this review you need to check the timing. To do this click the “Options” button at the bottom of the “Print Review” dialog box and then select the radio button marked Weekly. Click ‘OK’ twice to return to the ‘dialog box’.

You are now ready to run the review, so click ‘View’. A “Select Portfolios for MetaStock Sector Analysis” dialog box will appear, and you need to select your portfolio and market sectors from it. This list should be stored with the other market data and is usually one folder away from your shares folder. However this may vary, depending on who is providing your data.

When the market segments are highlighted, click `OK`. When the review is complete the ‘Review Completed’ dialog box will appear. Click the “Reports” button and get a summary of the review. The results shown in “Column A” will give you an average of the change in relative strength

Tip: By clicking on `Column A` you can sort the results in ascending or descending order.

What do these results mean?

The results of this study are straightforward. A value greater than zero indicates that the market sector is outperforming the underlying index. A zero indicates that the market segment is performing in line with the base index, while a negative number indicates that the market segment is underperforming the base index.

Remember, an increase in RSC value only indicates that the market sector is outperforming the underlying Index, it does not mean that the sector is increasing in value. Similarly, if the RSC falls; it only indicates that if the sector is underperforming the market index, the market sector may not lose value. Because of this, it is important to open a chart of market segments to analyze trends.

This information itself can help your current business. For example, you may decide to trade only in securities that are in good performing sectors. Or, you can take it one step further and select the top five sectors and use the MetaStock Sector Analysis Sector inspector again. This time, however, you can compare individual securities against their respective sectors.

The difference between running this study and using the first one, is that the market indicator will now be a market sector chart; and the list of sectors will be the list of securities that make up the best performing sectors.

By following the same steps as before you can run five different reviews and sort securities against their categories. The result will identify the top performing shares in the top five sectors.

The final step in this advanced analysis will be to open all the charts that have made it to the short list. You can further narrow this list by removing those warrants that are not up-trending or that have sold the most. In the end you will be left with the cream of the crop, between five and ten securities. These guarantees will be the best performing guarantees in the best performing sectors.

These credentials should now be placed on your watch list. I suggest you don’t run out and buy them. Instead, wait for the right trigger to occur. This can be based on candlestick patterns, and/or a favorable combination of other bullish indicators.

RSC reviews are a great way to leverage the power within MetaStock. It can be a very effective tool in identifying profitable trading opportunities. The downside of this type of inspection is that it is not a complete system on its own and will have to be combined with other rules for entry, exit and money management. However, you can create a solid business plan that will greatly benefit from incorporating sector analysis.

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