The Relative Strength Concept of Common Stock Price Forecasting

Robert A. Levy’s landmark study, “The Relative Strength Concept of Common Stock Price Forecasting,” is one of the earliest and most rigorous quantitative investigations into the predictive power of technical indicators. Unlike typical trading books that present relative strength (RS) as a simple comparative ranking tool, Levy approaches the subject with scientific depth—evaluating RS through empirical testing, statistical models, probability functions, and long-term performance studies.

Drawing on over a decade of market data, Levy demonstrates how stocks that outperform the market over an intermediate period often continue to outperform—documenting one of the foundational principles of modern momentum trading. The early sections of the book detail the construction of RS ratios, mathematical normalization of returns, and the design of forecasting intervals used in his research.

Subsequent chapters examine the effects of smoothing periods, ranking methodologies, volatility adjustments, and test windows. Levy evaluates hundreds of stocks across multiple timeframes to determine which RS variations produce statistically significant forecasting power. These findings remain highly relevant to both discretionary and algorithmic traders today, forming the basis for systematic momentum strategies.

The book concludes by synthesizing RS concepts into actionable forecasting tools, showing how traders and analysts can create ranking models, screening systems, and rule-based strategies built on Levy’s research. Clear tables, charts, and summaries make complex quantitative findings accessible without oversimplification.

This is an essential text for traders interested in evidence-based technical analysis, systematic strategy design, and the mathematical foundations of momentum.

✅ What You’ll Learn:

• How relative strength (RS) is mathematically defined and constructed.
• The statistical foundations of RS as a forecasting indicator.
• How to evaluate RS across multiple timeframes and smoothing intervals.
• How RS rankings can predict future outperformance.
• The impact of volatility, market trends, and return normalization on RS signals.
• How RS research evolved into modern momentum and quant-factor models.
• How to build practical RS-based screening and trading systems.
• How to interpret empirical test results and performance curves.

💡 Key Benefits:

• Provides a rigorous, research-based understanding of relative strength.
• Ideal for traders seeking quantitative validation of technical indicators.
• Bridges classical technical analysis with modern algorithmic trading.
• Teaches how to design RS models used in momentum strategies today.
• Supports systematic, rules-based decision-making.

👤 Who This Book Is For:

• Traders and analysts seeking quantitative foundations for technical analysis.
• Systematic and algorithmic traders using RS or momentum strategies.
• Intermediate-to-advanced practitioners studying indicator performance.
• Portfolio managers and researchers building ranking models.
• Anyone who wants to understand the empirical basis of momentum.

📚 Table of Contents:

• Definition of Relative Strength
• Measuring Price Performance
• Construction of RS Ratios
• Forecasting Horizons and Timeframes
• Empirical Tests and Historical Data Review
• The Predictive Power of RS
• Effect of Market Conditions on RS
• Ranking Models and Screening Techniques
• Applications in Portfolio Strategy
• Limitations and Considerations
• Summary & Final Conclusions

The Relative Strength Concept of Common Stock Price Forecasting By Robert A. Levy