What Is RS Rating?
Relative Strength (RS) rating is a percentile ranking that measures how a stock's price performance compares to all other stocks over a defined period. A stock with an RS rating of 85 has outperformed 85% of all other stocks in terms of price appreciation.
It's important not to confuse RS rating with RSI (Relative Strength Index), which measures a stock's momentum against itself. RS rating is a comparative measure — it tells you how a stock ranks versus the entire market universe.
How RS Rating Is Calculated
The calculation weights recent performance more heavily than distant performance. A typical weighting uses 40% for the most recent quarter, 20% each for the prior three quarters. This captures stocks that are accelerating — gaining momentum relative to the market.
The final score is expressed as a percentile (1-99). An RS of 90 means the stock's weighted price performance ranks in the top 10% of all stocks. This makes RS ratings easy to compare across sectors and market caps.
Why High RS Stocks Outperform
Decades of market research confirm that stocks showing relative strength tend to continue outperforming. This isn't random — it reflects institutional accumulation. When smart money is building positions, it creates sustained price performance that shows up as a rising RS rating.
The key insight is that relative strength persists. A stock outperforming the market today has a statistically higher probability of outperforming next month compared to a stock that's lagging. Momentum is one of the most robust factors in equity markets.
How Swing Traders Use RS Rating
RS rating serves as a primary filter for trade candidates. Instead of scanning all 5,000+ stocks for setups, focus on stocks with RS ratings between 70 and 95. This dramatically narrows your universe to stocks with proven institutional demand.
The sweet spot: RS 70-95. Below 70, stocks lack the relative momentum that fuels breakout follow-through. Above 95, stocks may be extended and prone to sharp pullbacks. The 70-95 range captures stocks in strong uptrends that still have room to run.
Combining RS with setups. The most powerful swing trades combine high RS ratings with constructive chart patterns. A consolidation breakout in a stock with RS 85 has a much higher success rate than the same pattern in an RS 40 stock. RS tells you the stock has demand — the pattern tells you when to enter.
RS expansion as a signal. Watch for stocks whose RS rating is improving week over week. A stock moving from RS 60 to RS 78 over six weeks is under accumulation — even before it sets up a chart pattern, it's signaling institutional interest.
Practical Guidelines
- Only take long swing trades in stocks with RS above 70
- Prioritize setups in stocks with RS 80-95
- Avoid stocks with declining RS ratings, even if the chart looks good
- Use RS ranking within a sector to find the leaders (buy the strongest name in the strongest group)
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