Comparative Relative Strength Strategy
Strategy Logic
The comparative relative strength strategy generates trades by comparing the relative strength of two markets. Outperformance of the comparison market versus the benchmark is seen as a buy signal, underperformance as a sell signal.
The logic is:
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Select comparison market, e.g. a stock
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Select benchmark market, e.g. S&P 500 index
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Compute ratio of comparison market vs benchmark
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Go long the comparison when ratio exceeds overbought level
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Go short when ratio falls below oversold zone
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Set pullback line to close positions when price falls back
By comparing relative strength, the strategy aims to uncover undervalued opportunities and avoid overvalued conditions.
Advantages
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Compares relative strength to find undervaluation
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Pullback line avoids chasing trends
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Simple and clear rules
Risks
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Appropriate benchmark needs selection
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Overbought/oversold zones require optimization
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LONG/SHORT only misses full opportunities
Summary
The relative strength strategy identifies arbitrage chances by comparing two markets. But parameter tuning and stop strategies require prudent assessment.
/*backtest
start: 2022-09-07 00:00:00
end: 2023-09-13 00:00:00
period: 1d
basePeriod: 1h
exchanges: [{"eid":"Futures_Binance","currency":"BTC_USDT"}]
*/
//@version=2
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// Copyright by HPotter v1.0 10/03/2017
// Comparative Relative Strength Strategy for ES- 1