Relative Strength – Alpha Vol

Creator: Definedge

• Period: 50
• MA Period: 20

When you select the Relative Strength Alpha Vol indicator, two lines are displayed on the chart.

1. The green line represents the Relative Strength Alpha Volatility indicator
2. The red line represents the moving average of Relative Strength Alpha Vol indicator

The Relative Strength indicator is a component of the relative strength analysis of a market.

The Relative Strength indicator is calculated differently from the ratio chart, but the behaviour is almost identical. The Relative Strength indicator is computed by subtracting the returns of the numerator from the returns of the denominator.

The volatility of a stock versus Nifty should also be taken into account when comparing the returns of these instruments. Nifty indexes do not move as much as stocks. During a single day, a stock can move by 5% or 10%, but the benchmark index only does that very rarely.

As a result, it would be prudent to take into account the average volatility of each instrument when comparing returns. The RS-AV indicator is also known as Relative Strength–Alpha Volatility.

In order to use this indicator effectively, it is important to choose a look-back period. The number of bars on the chart can be adjusted, as well as the dates of significant events.

Since the volatility of stocks is generally higher than their returns, it is not common for this indicator to remain in positive territory.

As a result, the indicator generally remains within a range of -1 and 1. Crossovers of -0.50 may serve as significant trigger levels. Stocks trading above -0.50 may be considered bullish if they are filtered using this indicator. In the event that you find stocks above zero, they are extremely bullish, as they are outperforming the markets in terms of both returns and volatility.

As long as the RS-Alpha indicator is above its zero line and above its average line, the stock is bullish and outperforming its benchmark in terms of performance and volatility. A reading of the RS-Alpha indicator below the zero line and below its average line indicates that the stock is bearish and underperforming the benchmark in terms of performance and volatility.

You can scan the RS -Alpha Vol indicator readings for various instruments by selecting the RS indicator scanner from the RS scanner menu on TradePoint & RZone. In this manner, you will be able to compare the readings of all stocks based on both trend and volatility. You will also be able to check the readings of the relative strength alpha indicator and the Ratio rank indicator along with the Alpha volatility indicator.

Prashant Shah introduced this indicator in his book on Relative Strength analysis. This book is available for free on Shelf.

Click here to learn more about this indicator.