There’s a big difference between a point and figure relative strength chart on a buy signal and one on a sell signal. According to a recent white paper written by John Lewis, CMT of Dorsey Wright Money Management:
“Stocks on relative strength sell signals underperformed the market by a wide margin. Whether they were in a column of X’s or O’s, they performed worse with more volatility than either of the two benchmarks.”
Being on a relative strength sell signal is a big deal. It indicates long term underperformance by the security. Being in a column of X’s shows that the security has been outperforming its benchmark in the near term. However, until that security has reversed its point and figure relative strength chart to a buy signal, the long term trend is still one of underperformance.
Source:
http://dorseywrightmm.com/sites/default/files/White%20Paper%20-%20PnF%20RS%20Signals.pdf
http://systematicrelativestrength.com/2014/09/02/point-figure-rs-signal-implementation/
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