PRELIMINARY BACK-TESTING RESULTS FOR RELATIVE STRENGTH PERSISTENCE

by Isaac Israel

In this chapter, we will mention our initial elementary findings about one of the main assumptions in the Investor’s Business Daily newspaper about Relative Strength: William O’Neil wrote in his books that "Strength leads to more strength." Apparently, this is the reason the Relative Strength ranking of stocks is crucial in the IBD newspaper, because it is believed that those stocks which are consistently outperforming most of the market, are likely to maintain this upward momentum for a reasonably long period of time, and attain much higher values. We can call this assumption, the "Axiom Zero of Relative Strength." If Relative Strength is to be used either for long term or short term investing, then the Axiom Zero must have at least some statistical validity.

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