Hi Rainier, the ambiguity in Thought #1's selection process might be resolvable with this multi-pass trend identification stuff I've been working on. I'll have to post a description of it one of these days. As far as "which fan," how about making it adaptive (my favorite word)and letting the stock tell you which one to use?
For thought #2, I agree in principle with relative strength as a selection criteria (or maybe you were referring to alpha, which, although slightly different, does give the same results for the upper extremes). The way it is commonly used (I know you already know this...just adding some verbage for others) is by using high current values as indicative of outperforming whatever it is compared to. A less common way to use a relative strength measure is to use the "change" in relative strength (the acceleration), while ignoring the absolute level of the current reading. Since prices move in waves/cycles/phases, a certain stock may be starting its ascent from a low or a base while the index is topping or beginning a decent. So it would have a low current value compared to the broad market index, but its "delta relative strength" would be very high, whereas the toppy index would have a very low delta relative strength.
This is only one possible scenario. The index could be rising on a diagonal, but the stock is pulling out of its base exponentially. If we wait til its current relative strength reading exceeds the index, much of the move would have gone uncaptured.
dh |
