Relative Strength: How to Find the Market's Leading Stocks

Relative strength (RS) measures how a stock performs compared with a benchmark, usually the S&P 500 or the SPY ETF. A stock with strong relative strength is rising faster, or falling less, than the market, which makes RS one of the most practical tools for finding leading stocks before and during a breakout.

This guide covers how the RS line is built, why RS new highs matter, how to screen with the Minervini trend template and how RS differs from RSI. It is educational only, not financial advice.

Key takeaways

• Relative strength compares a stock to a benchmark; it is not the same as the Relative Strength Index (RSI), which compares a stock's gains and losses to itself.
• The RS line is the stock's price divided by the benchmark's price; a rising line means the stock is outperforming.
• An RS line making a new high before price does is a classic early sign of institutional demand and often precedes a breakout.
• Mark Minervini's trend template has eight criteria, including price within 25% of the 52-week high and an RS rating of at least 70.
• Relative strength is a filter that narrows the list; it still needs a proper entry, stop and position size.

What is relative strength in stocks?

Relative strength in stocks is a comparison of one stock's price performance to a benchmark over the same period. It answers a simple question: is this stock keeping up with the market, beating it or lagging?

If SPY rose 5% over three months and a stock rose 15%, the stock has strong relative strength. If it rose only 2%, it is lagging, even if its own chart looks fine.

Relative strength vs RSI: what is the difference?

Relative strength compares a stock with an outside benchmark; RSI compares a stock's recent gains with its own recent losses to produce an oscillator from 0 to 100. The names are confusingly similar.

Use RS to choose which stocks to look at and RSI, if at all, to help time entries.

How is the RS line calculated?

The RS line is the stock's price divided by the benchmark's price at each point in time, plotted as a line. If the line rises, the stock is gaining on the market; if it falls, it is losing ground.

RS line = stock price / benchmark price

Hypothetical example: SPY is at $500 and a stock is at $100, so the ratio is 0.200. A month later SPY is at $520 (up 4%) and the stock is at $115 (up 15%). The ratio is 115 / 520, about 0.221, an 11% rise. The stock outperformed.

The RS line can rise even when a stock falls, if the market falls more. That is why it identifies resilient stocks in weak markets. Most charting platforms plot it as a panel under the price chart.

Why do RS new highs matter?

An RS line that makes a new high before the stock's price does means the stock is already beating the market even though it has not broken out yet. That usually reflects steady buying by large investors, and it often precedes a price breakout.

The opposite is a warning. If price is near its high but the RS line is making lower highs, the stock is lagging the market, and buyers may be less committed than the price suggests. Such stocks often fall faster when the market weakens.

Worked example with hypothetical numbers

A stock is in a seven-week base below $50.00 resistance. Its RS line against SPY hits a 52-week high while the stock is at $48.20, three percent below the pivot. The trend is up, volume has dried up in the base, and the market is in an uptrend.

• Entry: $50.10 on a breakout above resistance with volume at least 1.5 times average.
• Stop: $47.20, below the base's last low. Risk is $2.90.
• Target: $56.00, near a measured move from the base. Reward is $5.90.
• Reward:risk: $5.90 / $2.90, about 2:1.

The RS line did not guarantee the breakout; it moved this stock up the list of candidates.

How do you find relative strength leaders?

Start with stocks near breakout levels, keep those with rising RS lines and confirm with price and volume. A practical process:

1. Check the market. Leaders work best when the broad market is in an uptrend. The market breadth guide explains how to read it.
2. Build the universe of stocks forming bases near their 52-week highs, such as cup-and-handles, flat bases and tight flags.
3. Apply the RS filter. Keep stocks whose RS line is rising and ideally at or near new highs; drop those with flat or falling lines.
4. Compare within the sector. The leader is usually the stock with the best RS and the strongest volume. Buying the cheaper laggard is a common beginner mistake.
5. Confirm with price and volume. Look for a tight base, volume dry-up and a breakout on expansion.

A short list of five to ten leaders is more useful than fifty mediocre setups.

What is the Minervini trend template?

The trend template is a set of eight criteria from trader Mark Minervini that describe a stock in a strong, institutional-quality uptrend. A stock should meet all of them:

1. Price is above the 150-day and 200-day moving averages.
2. The 150-day average is above the 200-day average.
3. The 200-day average has been rising for at least one month, and ideally four to five.
4. The 50-day average is above both the 150-day and 200-day averages.
5. Price is above the 50-day average.
6. Price is at least 30% above its 52-week low.
7. Price is within 25% of its 52-week high.
8. The relative strength rating is at least 70, and preferably 80 to 90 or higher.

The RS rating in criterion 8 is a percentile rank of the stock's price performance against all other stocks, usually over about 12 months with extra weight on recent months. A rating of 90 means it outperformed roughly 90% of stocks. Paid StockSetups plans include the Minervini trend template alongside relative strength, so you can screen for it without building the rules by hand.

Once a leader pulls back, the 50-day moving average pullback offers a low-risk way to enter. Volume-backed buying on the way up can be read with the pocket pivot setup.

Common mistakes with relative strength

• Confusing RS with RSI. They are different tools.
• Chasing extended leaders. A stock 40% above its 50-day average has strong RS and a poor entry.
• Ignoring the market. Even leaders fall in a market correction.
• Using too short a window. A one-week RS reading is noise; use months.
• Treating RS as an entry signal. It selects candidates; the chart provides the entry.
• Holding a leader that has stopped leading. If the RS line breaks a long uptrend, reassess.

The bottom line

Relative strength helps you spend time on stocks that are already beating the market. Use the RS line, look for RS new highs before price breakouts, screen with the trend template and keep entries, stops and sizes disciplined. Leaders can fail, past performance does not guarantee future results, and you should manage risk and do your own research.

StockSetups scans the full US-equities universe after the close and sorts upside setups into Setting up, Breaking out, Broke out and Retesting breakout lanes. Paid plans add relative strength and the trend template, so you can focus on leaders inside those lanes.

For turning leaders into entries, see breakout trading explained and how to build a stock watchlist.