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Concept: Definedge
RSI Period : 14
Average Period : 9
Ratio rank is another extremely creative indicator.
The ratio chart is a component of the relative strength analysis in a market analysis.
Ratio charts are produced by dividing the price of the numerator instrument by the price of the denominator instrument. Therefore, you must choose the denominator instrument when plotting the ratio rank indicator below the price. The default instrument is Nifty.
The ratio chart indicates that the stock is outperforming the denominator. When the ratio chart is falling, it indicates that the stock is underperforming the denominator. Based on the ratio chart’s behavior, the Ratio rank indicator ranks the instrument.
The rising ratio rank indicator indicates that the stock is gaining momentum and outperforming its denominator. A falling ratio rank indicator indicates that the stock is in a strong downtrend and underperforming the denominator.
Ratio rank greater than 50% are considered bullish readings.
Prashant Shah introduced this pattern in his book on Relative Strength analysis.
By selecting the RS indicator scanner in the RS scanner menu in RZone and TradePoint, you can also scan the ratio rank indicator. This will enable you to compare the readings of all stocks on ratio rank and relative strength alpha.
Click here to learn more about the indicator and the relative strength analysis.