Relative Strength Scatter Plot
Feb 6, 2024
The Relative Strength Scatter Plot indicator serves as a valuable tool for traders aiming to assess the historical performance of user-selected securities against a specific benchmark. Inspired by Relative Rotation Graphs®, this indicator presents a straightforward scatter plot demonstrating relative strength metrics, facilitating more informed trading decisions without any affiliations with JOOS Holdings B.V.
How to Trade Using the Relative Strength Scatter Plot Indicator?
The indicator illustrates a scatter plot where the X-axis represents relative strength ratio and the Y-axis denotes momentum for user-chosen symbols versus a benchmark. This graph is divided into four quadrants, each providing insights into the security's performance:
- Green Quadrant: Indicates securities leading the benchmark with both strong metrics and positive momentum.
- Yellow Quadrant: Shows securities leading in strength over the benchmark but with decaying momentum.
- Blue Quadrant: Represents securities lagging the benchmark in strength yet gaining momentum.
- Red Quadrant: Highlights securities lagging behind in strength and suffering negative momentum.
Traders can observe the evolution of a security's relative strength momentum through each symbol's trail, adjustable via the "Trail Length" setting. This provides a dynamic view into how securities have evolved over time.
Technical Details of the Relative Strength Scatter Plot Indicator
The calculation of the relative strength ratio originates from comparing the symbol of interest with the benchmark's strength. This foundational ratio undergoes smoothing via a linearly weighted moving average (WMA). Upon normalization through a secondary WMA, the result is scaled by 100 for uniformity. Meanwhile, the relative strength momentum is derived by examining the ratio between the RS-Ratio and its WMA, again scaled by 100.
Configuring Your Indicator Settings
- Calculation Window: Defines the timeframe for computing RS-Ratio and RS-Momentum metrics.
- Symbols: Select symbols for the graph analysis. Each line controls visibility and color on the plot.
- Benchmark: Choose a benchmark symbol, typically an index, pivotal for the graph's computations.
Customizing Graph Display
- Trail Length: Set the number of historical data points to visualize for each symbol.
- Resolution: Adjusts the breadth of the graph horizontally.
Frequently Asked Questions
How can I access the Relative Strength Scatter Plot indicator?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.
What does it mean if a point is in the red quadrant?
It indicates that the security is trailing behind its benchmark in both strength and momentum.
Can I customize which symbols to compare against a benchmark using this indicator?
Absolutely, you can select various symbols and define their appearance within the indicator settings.
Trading is risky and many will lose money in connection with trading activities. All content on this site is not intended to, and should not be, construed as financial advice. Decisions to buy, sell, hold or trade in securities, commodities and other markets involve risk and are best made based on the advice of qualified financial professionals. Past performance does not guarantee future results.
Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, including, but not limited to, lack of liquidity. Simulated trading programs in general are designed with the benefit of hindsight, and are based on historical information. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.
As a provider of technical analysis tools for charting platforms, we do not have access to the personal trading accounts or brokerage statements of our customers. As a result, we have no reason to believe our customers perform better or worse than traders as a whole based on any content or tool we provide.
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