You’ve probably heard us discuss how relative strength allows us to keep tabs on market leaders and laggards. It’s not perfect because no investment strategy is, but relative strength helps us achieve our goal of cutting losses short while letting profits run.
We stack the odds in our favor by allowing relative strength to highlight which areas of the market are performing with superiority to their peers. To put it plainly, investments that have been going up faster than other similar investments. This can be done with stocks, ETFs, mutual funds, sectors, asset classes and more using point and figure charts. We value peer and market relative strength (among other factors) when evaluating investments.
A recent post by Mark Dow reminded me of our relative strength strategy. He wrote about why trends are not worth fighting. Dow states, “Managing money is about pressing your bets when the odds are in your favor”. This line reminded me of how we use relative strength to stack the odds in our favor at Mullooly Asset Management. He equates fighting a chart break down to stepping in front of train. This made me think of our general outlook on stocks in negative trends on their point and figure charts. I thought Dow made several good points in his post.
With the odds stacked in your favor, does that mean you’ll win every time? No, but it helps increase your chances. That’s why we use point and figure charts along with relative strength to monitor our clients’ investments.
Check out Dow’s post here: Of Trends, Yields, and Metals