Ratio RSI Indicator

Concept- Definedge

#relative-strength #RSI #comparison #momentum 

Ratio RSI Indicator tells you if a stock is gaining or losing ground against the market — and whether that relative move is overdone. 

Default period: 5 

How to read it: 

Same 0-to-100 scale as regular RSI, but instead of measuring the stock’s own price momentum, it measures the stock’s momentum relative to the index. Above 50 means the stock is outperforming the market. Below 50 means it’s lagging. 

Useful readings: 

– Above 70 — the stock is running hard ahead of the market. Relative strength is stretched. A slowdown vs the index is likely. 

– Below 30 — the stock is getting crushed relative to the market. Relative weakness is extreme. A bounce vs the index may be coming. 

– Crossing above 30 — the stock is starting to outperform again after a period of lagging. 

– Crossing below 70 — the stock is losing its edge over the market. 

– Stuck near 50 — the stock is just following the market. No independent leadership. 

Use cases: 

– Stock picking: Screen for stocks with Ratio RSI above 70 — those are the true leaders, not just survivors in a bull market. 

– Avoiding traps: A stock can be rising in price but still underperforming the market. Regular RSI won’t catch that. This will. 

– Rotation plays: When the Ratio RSI turns down from highs, that stock is losing relative leadership — time to rotate into something stronger. 

– Crash protection: In a falling market, stocks with Ratio RSI staying above 50 are the ones holding up best. Those are your defensive picks. 

Objective rules: 

– Enter long when Ratio RSI crosses above 30 from below. 

– Enter short when Ratio RSI crosses below 70 from above. 

– Exit when it crosses back through 50 in the opposite direction. 

– Avoid buying above 80 or selling below 20 — the relative move is overextended. 

What makes it unique: A regular RSI tells you if a stock is overbought or oversold in absolute terms. The Ratio RSI tells you if a stock is overbought or oversold relative to the market. In a falling market, even a “strong” stock can be underperforming the index — and this indicator catches that nuance. It’s the go-to tool for picking stocks that are truly leading, not just surviving. This indicator sees the stock in competition with the market. That’s the difference between knowing a runner is fast and knowing they’re winning the race. 

Prashant Shah introduced this pattern in his book on Relative Strength analysis.