Smart Relative Strength

The Smart Relative Strength indicator provides a refined approach to relative strength analysis by filtering out "false positive" signals that occur during market downturns. It aims to identify genuine outperformance by ensuring a symbol is achieving positive absolute returns in addition to outperforming its benchmark.

Usage

The Smart Relative Strength tool is used to identify when an asset or sector is exhibiting true strength relative to a benchmark index (such as the S&P 500). Traders can use the histogram to gauge the intensity of outperformance or underperformance:

• Positive Green Histogram: Indicates the symbol is outperforming the benchmark and has a positive absolute return.
• Zero/Neutral Value: Occurs when the symbol is outperforming the benchmark solely because it is falling less than the index (a "false" signal filtered by the algorithm).
• Negative Red Histogram: Indicates the symbol is underperforming the benchmark.

For example, during a market crash, a stock might show high relative strength in traditional calculations simply by losing 5% while the index loses 10%. The Smart Relative Strength script sets these instances to zero, focusing the user's attention only on assets showing actual positive growth.

Details

Traditional Relative Strength (RS) is calculated by subtracting the percentage change of a benchmark from the percentage change of a base symbol over a specific period. While effective, this method is prone to noise during high volatility or bearish regimes.

The "Smart" logic implemented here introduces a conditional filter: if the base symbol's absolute return is negative, the indicator returns a zero value even if its relative return is technically higher than the benchmark. This ensures that the green bars on the histogram represent periods where an asset is both gaining value and beating the market.

Settings

• Comparative Symbol: The ticker ID used as the benchmark for comparison (defaults to SPX).
• Period: The lookback length (number of bars) used to calculate the percentage change for both the base and comparative symbols.

FAQ

How do I interpret a zero value on the histogram?

A zero value indicates that either the relative strength is exactly neutral or that the asset is outperforming the benchmark while its price is in an absolute decline, which the script filters out to avoid false bullish signals.

Can I change the benchmark from the S&P 500?

Yes, you can modify the "Comparative Symbol" in the settings menu to any other ticker, such as Bitcoin, Gold, or a specific sector ETF, to see relative performance against different markets.

How can I access Smart Relative Strength?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.