Relative Strength — Following Where Capital Flows

At any point in time, some stocks are rising much faster than the market. Some are lagging badly. And most are somewhere in between. Relative strength is the discipline of identifying which stocks are leading — and understanding that capital consistently flows toward strength, not weakness.

Why This Matters

Relative strength (RS) measures how a stock's price performance compares to all other stocks over a defined period, typically 52 weeks. A stock with an RS rating of 90 has outperformed 90% of all stocks over that period. A stock with an RS rating of 20 has underperformed 80% of all stocks. The concept is deceptively simple and empirically powerful. O'Neil's research showed that the biggest winning stocks of each market cycle had relative strength ratings above 80 before their major price advances began — meaning they were already outperforming the majority of stocks before they made their biggest moves. Buying strength — not weakness — was the systematic path to identifying what the market was actually rewarding. Driehaus approached relative strength from the practitioner's perspective: capital flows toward strength because strength signals where something good is actually happening. The institutions with the best information — analysts closest to management, early reads on earnings revisions, deep industry knowledge — act first. Their buying creates relative strength. By identifying that strength early and following it, the momentum investor is, in effect, following the best-informed capital in the market.