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Investment Course • Technical Analysis

Select market leaders based on relative strength

Find the winners before the crowd. With relative strength and ratio charts, you identify stocks and sectors that structurally beat the market.

  • Recognizing market leaders through measurable outperformance.
  • Reading ratio charts and detecting sector rotations early.
  • Structured selection: from index to sector to stock.
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Revisit investment course Market Leaders & Relative Strength

Those who seek better investment results in the long term do not focus on “cheap” stocks, but on market leaders: effects that demonstrably outperform the market or their sector.

In the video, Mark explains how market leaders are selected through relative strength, based on ratio and comparison chartsYou learn to work according to a structured process: from strong index to strong sector, and then to strong stocks.

Definition

What are market leaders?

Market leaders are stocks or ETFs that not only rise, but structurally outperform their referenceThey often take the lead when a new market phase starts and retain their value relatively better in more difficult market conditions.

  • In strong markets, market leaders ensure maximum participation.
  • In weaker markets they often offer relative protection.
  • During market rotations, they identify early where capital is shifting.

Relative strength: measuring instead of estimating

Relative strength is not a subjective judgment, but a measurable comparisonThe performance of a stock or sector is compared against a benchmark, such as a broad index or sector index.

This comparison makes it clear whether an effect outperformance realizes, which is essential for structured investing.

Ratio and comparison charts as a tool

Instead of looking exclusively at price charts, work is done with ratio charts: the price of one instrument divided by that of another.

  • A rising ratio indicates increasing relative leadership.
  • A declining ratio indicates declining strength.
  • Breakthroughs in the ratio can signal sector rotations early.

When to apply relative strength?

Relative strength works best when selection toolIt helps filter markets, sectors, and stocks, but does not constitute a complete entry or exit system in itself.

Therefore, relative strength is consistently combined with trend analysis and structural confirmation in the price chart.

1

Market & index

Analysis of the general market and the dominant index: where does the power lie today?

2

Strong sectors

Selection of sectors that outperforming the market, visible via ratio graphs.

3

Leading stocks

Identification of the shares that within that sector lead compared to their peers.

4

Timing & follow-up

Entry and management via technical structure: trend, support, resistance and confirmation.

Theory

Theoretical core (first 22 minutes of the video)

  1. Introducing the concept of market leadership
  2. The importance of benchmark comparison
  3. Interpretation of ratio charts
  4. Relative strength as a structural selection criterion

Following this theoretical framework, the video provides an extensive practical discussion with concrete examples and explanations for each tab.

Common pitfalls: Using relative strength apart from the market environment, ignoring timing for strong stocks, and confusing relative strength with momentum indicators such as the RSI.

📚 Key concepts

Key concepts from this lesson

Leading in the market
A stock or ETF that consistently outperforms its benchmark index or sector. Market leaders often take the lead in a new market phase and hold up relatively better during declines.
Relative strength
The measurable comparison of the performance of a security against a benchmark. Not to be confused with the RSI, which only looks at the price movement of the security itself.
Ratio graph
Chart in which the price of one instrument is divided by that of another. A rising ratio indicates relative leadership; a break in the ratio often signals an early rotation.
Benchmark
The reference point for the comparison: a broad index (such as the S&P 500), a sector index, or a peer. The choice of benchmark determines the meaning of the measurement.
Outperformance
A higher return than the benchmark over the same period. Structural outperformance is the most important selection criterion in this methodology.
Sector rotation
The shift of capital from one sector to another. Ratio charts make this visible early on, even before it stands out in the regular price chart.
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Further training and further education

Another contribution on ratio charts can be found here: Ratio charts: seeing and exploiting outperformance.

View courses and workshops → Test TransStock without obligation

Selecting Market Leaders Through Relative Strength – FAQ

What exactly is relative strength (RS)?
Relative strength is a comparison: you measure whether a stock/sector outperforms a benchmark (e.g., an index or sector index). This is often reflected in ratio or comparison charts: if the ratio rises, relative leadership increases.
Which benchmark do I choose: index or sector?
Start broadly (market index) to establish the context. Then, work more specifically (sector index) to identify the true leaders within a strong sector. The goal is to refine step by step.
Are ratio charts better than regular price charts?
They are complementary. The price chart shows direction and structure; the ratio chart shows leadership relative to something else. Together, they provide a much clearer picture than either one alone.
Can I use RS as an entry signal?
Not as the only signal. RS is excellent for selecting and spotting early rotations, but timing is best done with trend/structure (breakout, higher lows, support/resistance, etc.).
How often should I do RS screening?
That depends on your timeline. Many investors perform a broad scan (index/sector) weekly, with quick check-ups in between. It's important to establish a consistent routine.

This publication is for educational and informational purposes only. It does not constitute an invitation to buy or sell, nor does it constitute personal investment advice.

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This publication is for educational and informational purposes only. It does not constitute an invitation to buy or sell, nor does it constitute personal investment advice.

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