Relative strength exits with MACD averages and RSI

The same series for selection and exit

One comparative ranking convention maps listed names onto a rank-scale from 1 to 99 and treats a reading above 80 as membership in the strongest fifth of the universe.

The same rank-scale treats a drop below 50 as evidence that a name is no longer outperforming the market, supplying an explicit relative exit threshold.

Editorial: a long thesis is retired only after that rank decay, or after a later overlay on the same series, confirms that relative momentum has rolled over. The exit is taught as a second quantitative filter on the comparative series used for selection.

Trendlines and a point-and-figure filter

A comparative-strength line on a weekly chart can carry indicator trendlines across rising lows. A break of that line is read as a reversal in relative trend, often appearing before an absolute price peak because momentum typically cools first.

Point-and-figure of comparative strength uses a chosen box size and a multi-box reversal, often three, to ignore smaller flips. The point-and-figure filter then watches a 45-degree support line together with a triple-bottom pattern as the exit geometry.

Windows that keep trend-following coherent

The archive frames trend-following in equities as most coherent on three- to twelve-month windows, and describes both shorter and longer horizons as more mean-reverting.

A MACD of the comparative-strength ratio

A 12-period exponential moving average assigns about 15 percent of its value to the latest close, while a 26-period exponential moving average assigns about 7.5 percent, so the shorter span reacts faster than an equal-weight average of the same length.

A comparative-strength ratio is formed by dividing a security close by a broad-market close. A MACD of the ratio is then formed by subtracting a 26-period exponential average of that ratio from a 12-period exponential average of the same ratio, and pairing the line with a 9-period exponential average as the signal.

Sell readings on that comparative MACD occur when the line drops through its own exponential average, a signal-line cross that the archive presents as later than a trendline break on the raw relative-strength plot.

RSI and other overlays on the same ratio

The same ratio-for-price substitution can be applied to other overlays, including the relative strength index or stochastics, or by changing the MACD lookbacks to raise or lower signal frequency. Rebuilding the relative strength index on the comparative-strength ratio offers an alternative count of relative advances versus declines without leaving the series used for selection.