Relative Strength vs Index - Joe v2

This Indicator compares the relative strength of a ticker versus a reference index (QQQ/SPY), offering different calculation modes to capture performance or momentum differences.

Calculation Modes
Each mode analyzes the ticker’s performance against the index in a different way:

1. Moving Averages #1 (DEFAULT)
Compares the performance of the ticker relative to the index using the percentage distance from the moving average. This absolute deviation method may result in larger swings when price is far from the MA, offering a more sensitive view of divergence.

2. Moving Averages #2
Compares the performance of the ticker relative to the index using the ratio of price to moving average. This relative ratio method provides a smoother, proportional comparison and tends to produce stable values even when prices are far from the moving average.

3. % Based
Compares the percentage change in price since the session’s start time (adjustable) for both the ticker and the index.
Use case: Quick, simple snapshot of relative performance.

4. % Based - Bar-By-Bar
It compares the percentage change of the ticker from the previous bar to the percentage change of the index from the previous bar, and expresses the result as a relative strength percentage. It essentially answers: "Did the ticker move more (up or down) than the index in this bar?"

5. Rate of Change (ROC)
Compares the rate of change over a user-defined period. Optionally normalizes using ATR ratios to adjust for volatility.
Use case: Measures price momentum relative to the index.

6. RSI (Relative Strength Index)
Compares the RSI values of the ticker and index.
Effect: Highlights differences in momentum strength, expressed as a percentage difference.

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ATR Normalization (Very Important)
You can normalize the results of any mode using the Daily ATR of the ticker. This adjusts the output to account for the ticker's volatility, helping distinguish between meaningful moves and normal noise.

This is very important as every ticker have its own daily Average True Range (Typically movement in any given day)

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Trading Ideas

This indicator should not be used as the sole signal to enter trades; it works best when combined with your other trading signals.

As shown on the chart, at the open, the ticker was stronger than the index and initially moved upward. However, this strength eventually turned into weakness, and the ticker trended downward. Always keep a chart of the index open to monitor overall market behavior alongside your ticker.

It is well known that stocks generally follow the index. However, if a stock has news or specific reasons to move independently, knowing whether it is stronger or weaker than the index provides valuable insight.

Tip: If a stock is trading stronger than the index while the index is moving downward, once the index reverses and moves upward, the stock is likely to move with even greater strength, assuming it remains correlated with the index. Monitoring both the index and the stock together helps identify these opportunities.

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Important Companion Indicator: Correlation Tracker - Jv2 (Available From my Scripts)

The Correlation Tracker is a powerful tool designed to measure, visualize, and classify the correlation between a symbol and a reference index (QQQ/SPY). It provides an intuitive and customizable way to understand whether a ticker moves with, against, or independently from the market.

It classifies correlation strength into seven categories (from strong negative to strong positive) and highlights them using color-coded visuals, labels, meters, and optional background zones.

It is another part of the same puzzle and both should be used at the same time. One measuring relative strength, and the other correlation.