The relative strength line, or RS line, divides a stock's close by a market index's close each day. It rises when the stock does better than the market and falls when it does worse, whatever the market itself is doing. If a stock gains 10% while SPY gains 2%, its RS line rises about 7.8%. An RS line new high means the stock is outperforming the market by more than at any point in the last year.
Growth-stock traders watch for this because leaders often show their strength against the market before the price chart looks special. William J. O'Neil's charts plotted the RS line under every stock, and an RS line at a new high while the price is still inside a base, below its old peak, is widely read as an early mark of a potential leader. Stan Weinstein's stage analysis also used relative strength against the market to separate leaders from laggards. The relative strength article explains the measure in full.
Clear Tape's preset turns the signal into rules: it fires when the RS line against SPY closes above its highest value of the previous 252 sessions, and it marks the stronger form when the stock's close is still below its own 252-session high. The signal has no exit of its own, so the position is held with the ATR trailing stop. It is better treated as a leadership flag than as a precise entry: many traders use it to build a watchlist and time the purchase with a base breakout or a pocket pivot.
The exact rules
These are the rules the RS New High preset runs in Clear Tape, checked on daily bars after each close. This page and the software read the same rulebook, so they always agree.
Entry
- RS line: the stock's close divided by SPY's close on the same date.
- Signal: the RS line closes above its highest value of the previous 252 sessions (today not included).
- Strongest form: on that day the stock's close is still below the highest high of the previous 252 sessions (the RS line leads the price). Buy at that close.
Stop
- The ATR trailing stop: the highest high of the last 22 sessions − 3 × ATR(22), taken on the signal day; while the trade is open it only moves up.
Exit
- The trailing stop is hit. There is no other exit rule.
Target
- None of its own. The target shown is 2R (twice the entry-to-stop distance above the entry), for reference only; the trade is not closed there.
Parameters
| Parameter | Value |
|---|---|
| Benchmark | SPY |
| New-high lookback | 252 sessions (52 weeks) |
| Trailing stop | 22-day high − 3 × ATR(22) |
| Minimum history | 260 sessions |
Data it needs
- Daily bars (open, high, low, close), split-adjusted: at least 260 sessions, about 12 months.
- SPY daily closes for the same dates (the S&P 500 ETF, used as the market yardstick).
Where it differs from the published method
- A leadership signal more than an entry: it has no exit of its own beyond the trailing stop, so it works best alongside another system.
Terms used
- RS line: The stock's close divided by SPY's close on the same day. It rises when the stock does better than the market and falls when it does worse.
- 52-week high and low: The highest high and the lowest low of the last 252 sessions, about a year of trading days.
- ATR (average true range): A stock's typical daily move. Each day's true range is the largest of high − low and the distances from the previous close to the high and to the low (so gaps count); ATR(n) averages it Wilder's way (each new day counts 1/n). A stop set in ATRs sits farther away on a jumpy stock.
- ATR trailing stop: The highest high of the last 22 sessions minus 3 × ATR(22). While a trade is open it only moves up, never down.
- R (risk per share): Entry minus stop. A 2R target sits twice that distance above the entry.
Who it suits
Those with about two hours at the weekend and 15–30 minutes each trading day, who will hold mostly cash in corrections and accept that fewer than half of trades win.
This strategy suits growth-stock traders who spend time each week on a watchlist of potential leaders and want an objective way to see which names are outperforming. Checking it takes a few minutes after the close, and signals cluster in strong markets, when many stocks lead at once.
Holding periods are open-ended, from weeks to months, because the only exit is a trailing stop three ATRs below a 22-day high. That stop is wide, so each position is smaller for the same risk, and part of every gain is given back before the exit. Expect to combine the signal with your own homework on earnings and the market's direction, as the growth stocks course describes.
Strengths
- Focuses on the few leaders that produce a large share of the gains.
- Combines earnings growth, institutional demand, group strength and RS.
- Losses capped about 7–8% below the entry; winners trailed with the 50-day.
- The market's state sets when to buy and when to hold cash.
Weaknesses
- A low hit rate: often fewer than half of all trades win.
- Highly market-dependent: many growth stocks fell 50% or more in 2022.
- Earnings gaps can jump the stop, so a loss can exceed the plan.
- More homework: quarterly results and filings, about two hours a week.
Where it struggles: In sell-offs, defensive stocks make RS highs while falling: relative strength is not absolute strength.
Common mistakes
- Confusing relative strength with absolute strength. In a sell-off, a defensive stock that falls 3% while SPY falls 8% sees its RS line rise about 5%, and can make an RS new high while losing money. Check the price trend as well.
- Confusing the RS line with the RSI. The RS line compares a stock with the market; the RSI compares a stock's recent up moves with its down moves. They answer different questions.
- Treating every RS new high as a low-risk entry. The signal says the stock is leading; it does not say the price is at a good place to buy. A stock can make an RS high while stretched far above its averages.
- Lowering the trailing stop. The stop only moves up. Resetting it lower after a pullback removes the only exit the strategy has; see how trailing stops work.
- Ignoring the market. RS highs in a falling market often come from defensive groups rather than new leaders. Look at market breadth before acting.
Worked example
Illustrative numbers only. A stock closes at $45.00 on a day SPY closes at $500.00, so its RS line reads 45 ÷ 500 = 0.0900. The highest RS reading of the previous 252 sessions was 0.0890, so the line closes at a new 52-week high. The stock's own highest high of those 252 sessions is $48.00, so the price is still below its peak: the stronger form, with the RS line leading.
On the signal day the 22-day high is $46.00 and ATR(22) is $1.20, so the trailing stop starts at $46.00 − 3 × $1.20 = $42.40, a risk of $2.60 per share. With a $25,000 account and 1% risk ($250), the position is 96 shares, about $4,320. Months later the 22-day high is $55.00 and ATR(22) is $1.50, so the stop has risen to $50.50. When the price falls to it, the position is sold at $50.50: $5.50 a share, $528 in all, about 2.1R before costs. Had the stock turned down at once, the loss at the first stop would have been about $250, or 1R.
Learn and practice
Academy lessons
Calculators and guides
- Relative strength: measuring a stock against the market
- Trailing stops: how they work
- ATR stops: setting stops by volatility
- Market breadth: reading the whole market
- ATR stop calculator
- Position size calculator
Glossary terms
Using it in Clear Tape
- Free Turn on the RS New High preset in Trading systems. The rules are written out in full, and you can build your own systems from them (Free: up to 5 systems and a 50-stock watchlist).
- Tools After every close, RS New High screens your watchlist and lists its signals, with the entry, the stop and the target drawn on the chart.
- Free Check against my system: every rule of RS New High on any stock's daily bars, the levels it sets and the caveats (earnings close by, thin trading, gaps wider than the stop), with a short AI-written explanation of those facts. One check a day on Free as a trial, 10 on Tools, 30 on Pro.
- Tools Backtest RS New High with the two-period test: judged on 2000–2014, then run unchanged from 2015 to now against holding the same stocks, with your own costs and risk per trade (Tools 20 backtests a day, Pro 50). Results are hypothetical: each report discloses costs and survivorship bias, and past results do not predict future ones.
- Free Log the trades in the free trade journal, tagged with the system: R multiples, expectancy and an AI score of how closely each trade followed the plan.
- Pro The AI coach proposes rules from the way you actually trade (Pro, 5 conversations a month).
For educational purposes only. Not investment advice. Backtest results are hypothetical and do not predict future results.