Relative Strength Levy

What

The concept of relative strength according to Levy is based on the assumption that securities which exhibited a large relative strength in the past will also develop relatively strongly in future, and conversely. Here it is not the relative strengths of several instruments which are compared with each other, but the performance of the past with the performance of today.

How

For the calculation, the closing price of the instrument is divided by the arithmetic mean of the closing price over the observation period. The result is plotted around the 1.0 mark.

RSL = C / MA

Where C is Close and MA is the Moving Average

When

If an instrument has an RSL of greater than 1, it exhibits greater price strength today than in the past, whilst if it has a RSL of less than 1, the instrument is tending to greater weakness than in the past. One of the interpretations given by Levy is when analyzing all instruments in a particular index that only the two instruments with the highest ranking are bought, and the others are disregarded. A second interpretation of Levy is to first divide the standard deviations of the last 27 weekly closing prices by the arithmetic mean of the last 27 weekly closing prices. The intention of this method is to determine the volatility of the securities being observed. From the result of this operation, a ranking list must again be compiled. Levy considers the intersection of the first 5% of the RSL ranking and the first 12.5% of the volatility ranking to be purchase positions. The instruments belonging to the last 30% of the RSL list should be sold. In the same way as for the RS, one should use the RSL as a filter to enable more detailed investigation of the most promising instruments using other technical indicators.