By 
Setting up a relative strength investment strategy to produce profitable investment results requires more than simply choosing a method and plugging in typical and common setups. Results that produce safe investments with regular profits, regular profits, requires configurations that meet the needs of the group and its objectives.
Three keys to establishing and using relative strength reversals include:
- Relative Strength Analysis Type
- Investment Objectives
- Tests and configuration
Relative Strength Type
There are different types of relative strength momentum (RSM) analysis, and often these are best suited for one type of investment or objective. For example, are your goals aggressive or conservative or somewhere in between? Short term or long term; and you’re investing from a group of stocks, ETFs, or mutual funds.
aggressiveness
Generally speaking, an analysis based on Alpha (a type of RSM) is more aggressive than one based on normal relative strength momentum, performance, or price swing. However, if you add the Standard Deviation (SD) to Alpha to have an Alpha/SD analysis, the result is a conservative to moderate analysis strategy.
Aggression, however, does not always produce the best results.
My tests have shown that the best results are usually based on the type of group you choose to invest in:
for mutual funds:
alpha
alpha-C
RSM
alpha/sd
for ETFs:
msr/sd
RSM
alpha
alpha-c
for actions:
RSM
msr/sd
alpha
alpha-C
Goals
If your goal is conservative or moderate growth with minimal risk to your money, then an investment strategy analysis method that also uses standard deviation along with an exit signal from the market will give you adequate growth while protecting you when the market goes down. market falls.
Tests and adjustments
How you test or backtest your ticker symbol groups and different types of analysis is critical.
If you are more aggressive and willing to trade frequently, almost daily versus weekly or occasionally, you may want to try shorter time frames. Shorter time frames will give you signals for every turn in the markets and your positions, but will result in frequent trading that may or may not yield higher profits than more moderate trading based on weekly or monthly analysis.
Using your trading software and backtesting, you can find strategies based on wins along with drawdowns (losses) that meet your objectives.
For example:
An Alpha 10 strategy is based on analysis of 10 trading days rolling and will capture every rise and fall compared to an Alpha 60 based on analysis of 60 trading days (rolling) which averages the rises and falls and therefore, it results in less frequent trading.
A relative strength boost analysis set to a fast 10 and a slow 30 will act like the Alpha 10, while a fast 40 and a slow 90 settings would be somewhat similar to the Alpha 60. (Note that the results between Alpha and RSM will be different due to how different analyzes are calculated).
Other factors in setting up your strategy that also affect the results besides the type of analysis. These include:
- Desired analysis frequency: daily, weekly or monthly
- Desired minimum holding periods indicating your preference for how long you want to hold a position at least
- Stops – Are you going to set stops to force sell a position in case it falls too low?
The point is that just saying you’re going to use a relative strength reversal is nice, but it’s just the beginning. Just as the same shoe size does not fit everyone, nor does the same shoe style work for everyone, there is no one-size-fits-all RSM configuration. Only after you know what your goals are and what types of investments you want to make can you experiment to find the settings that work best for your pool, your 401k, or any other pool of funds, ETFs, or stocks.