Relative Strength, Spreads and Ratios

Relative strength and spreads between financial instruments are also easily analyzed and in effect become a security in thatcindicators are easily applied to them as well. This capability allows trading systems based on predicting spreads or relative strength to be developed. P1 and P2 refer to price of the 1st and 2nd security respectively while R refers to a corresponding reference price.

  • Standard spread equal P2 minus P1
  • Percent Spread equal (P2 - P1)/P1 * 100
  • Relative Strength 100*((P2*R1/P1/R2)-1)
  • Relative Strength equal (S2/S1-R2/R1) * 100
  • Ratio P2/P1 (good for put/call ratio)
  • Ratio P2/(P2 + P1)