Denominator choice in RS?
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Hi Fellow traders, PnF expert, Definedge experts,
I am relatively new to Definedge & PnF and I am intending to draw to PnF mainly from Relative Strength pov.
While it is great to have lot of indices to choose from, i want to establish a more process oriented approach.
I need some guidance in choosing the right denominator in RS which i can compare stocks and index to.Initially i thought about Nifty 500 Equal weight but on some contemplation i realised its more of indicator of breadth rather than Relative Strength.
Then i switched to Segments - MicroCap 250, Small cap 250, Midcap 150, Nifty 50, Nifty Next 50.
Counter question are individual segments too tight (may not cover all sectors) to compare to? What about market capitalization effect on indices?Do i choose which is best performing one at 0.25%/0.5%? (RS Matrix chart - RS Performance score) and keep on rotating?
I would be really grateful if someone can experienced help me understand which one to use and more importantly why.
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Depends on your trade strategy and universe sir. For trading f&o use Nifty 50, for cash use Nifty 500, of you are trading a particular segment or group use that index as denominator.
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Thank you @Karan-Dattani for your inputs.
I made this for Nifty 500 universe
I realised that market regime will change and at any point between Nifty 50, Next 50, Midcap 150, Smallcap 250, one index will be better than other. (for e.g. right now Smallcap 250 outperforms other segment)
Hence, I wanted to create a mechanism that it gives me stocks universe which outperform in all market regime (kind of create it, set and forget it)First i created a condition where in RS chart, it is in column of X and above Dsmart cloud at 1% boxsize
PS: I like the RS above Dsmart cloud, for someone it could be above Dsmart line. I leave it to them
Then i used this P&F RS scanner to develop an RS of each segment
Once i created all this, then i went into master scanner to look for stocks who outperforms all segments.
and to ensure that i don't have to repeat this process again and again, i added to auto groups
I created this methodology as a robust mechanism (so the segments can play between themselves to find a winner and we would still have those stocks who beat all segments) to filter out stocks who are not strong. This forms the Watchlist to search for AFT/ Turtle breakouts.
This pretty much solves the RS conundrum (hoping that it will
)I am posting this so that it may help the overall community and i am open for feedback/ suggestions as a part of learning.