Relative Strength Leaders

Why the stocks that hold up best during market pullbacks often lead the next advance, and how to spot relative strength on a chart.

Strength compared to what?

Relative strength compares how a stock is doing against a benchmark, usually a broad market index like the S&P 500. A stock that is up 5% while the market is down 5% has strong relative strength. A stock that is flat while the market rallies 10% is a laggard, even though it has not lost money.

Many successful breakout traders focus on leaders: stocks that outperform the market, especially during difficult periods. The idea is simple. If big investors keep buying a stock even when everything else is falling, they are likely to buy it aggressively when conditions improve.

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