How to Scan for Relative Strength

by | May 30, 2019

Stocks got kicked around yesterday as fears of a trade war escalate. China recently came out and said that it will put soybean purchases on hold for now.

And there were rumors yesterday that it might cut off supplies of rare earths- which are essential for smartphones, EVs, and other electronic devices.

However, despite the weakness in the overall market… there are stocks bucking the trend and are actually rising in this tough market.

That said, I’d like to talk to you about something very specific today… the concept of relative strength.

Traders and analysts use relative strength to measure how the price trend of one stock compares with its peers (or the overall market).

Furthermore, I’m going to show you a simple scan that you can use to identify strong stocks in a weak market and a whole lot more.


How to Scan for Relative Strength


Relative strength is very important when you’re looking for stocks to trade. You see, when the market is selling off… you wouldn’t want to go out and buy any stock.

For example, some stocks move with the market… while some simply don’t care what the market is doing whatsoever. Check out this daily chart in Roku Inc. (ROKU).


Now, compare that to the SPDR S&P 500 ETF (SPY) over the same period.



As you can see ROKU has been relatively strong when compared to the overall market.

Now, when you’re looking for stocks that are relatively strong, you can compare their performance to a sector-specific ETF, or the overall market. For example, if I’m looking to trade biotechs, I’ll look for stocks that are relatively strong compared to both the overall market and a biotech ETF.

That said, I’m going to be using Finviz to show you how easy it is to find relative strength amidst this market volatility.


Scanning for Relative Strength


Now, first, you’ll want to go to the Finviz screener here.

I’m going to filter by market cap, average volume, whether a stock is optionable, as well as the performance for the week.

I want to look for stocks with at least 750K in average daily volume because that means they’re going to be fairly liquid. Next, I want to focus on stocks with market caps greater than $300M. I also want to look for stocks that are optionable, just in case I want to trade options on them.

Now, you can also filter for price… with this scanning example, I’ll look at stocks trading under $20.

Lastly, we know the market has been experiencing a selloff this week… so we want to look for stocks that have actually been up on the week.


That means these stocks are relatively strong when compared to the market.

Here’s a look at the Finviz filter.



We’ve narrowed the stock-trading universe down to just 66 names.

Now, what I like to do after I’ve filtered for stocks is go to the charts.



This lets me look through these stocks really quickly.

Once I see a chart pattern I like… I’ll put it on my watchlist and look for any catalysts.

Keep in mind, you don’t have to use the same filter I just showed you…

For example, let’s say you don’t care about the stock price… but you do want the stock to be very liquid. Well, you could select an average volume of over 2M. Not only that, if you want to trade mid caps (or larger)… you can filter for that too.

Here’s how that filter would look.



Then you can select the charts tab under the filter box, and you’ll see these stocks.



Look at the first stock on the list… it’s Beyond Meat (BYND)… while the market has been downtrending, this stock has been on a tear.


BYND is trading above $100 in the pre-market… while the market is more or less flat right now. In other words, BYND is relatively strong when compared to the market.

Now, you don’t need to select “Week Up” for the performance… you can get pretty specific. For example, let’s say the market is selling off hard one day… and is down over 2%. Well, you can look for stocks that are relatively strong on that specific day.

All you have to do is select “Today Up” on the Performance tab. You can also look for stocks that are up 5%, 10%, 15% on the day… or on the week.

Basically, you want to do what you’re most comfortable with trading.

For example, if you like trading a specific sector… well, you can just filter for that sector. Let’s say you like trading tech stocks…

Here’s how you could filter for tech stocks that are relatively strong on the day.



Then, you would look at some charts…



Remember, it’s not just about scanning for potential stocks to trade… you should have a thesis behind the trade (a chart pattern you’re looking at or a catalyst event, whatever the case may be).

Now, if this is still a bit unclear to you… I actually send watchlists and alert clients about my trades, making it easier for you to find trades… and if you think that could benefit your trading, click here to get started.


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