Skip to Main Content

03/19/2024 |

New Indicators Added: Dorsey and Mansfield Relative Strength

Hello, Traders! We’re pleased to introduce two highly-requested new indicators to the platform; Dorsey Relative Strength and Mansfield Relative Strength.

This is a header image for the dorsey and mansfield relative strength blog.

Import Indicators

Dorsey Relative Strength (RSD)

The Dorsey Relative Strength indicator originates from “Point & Figure Charting” by Thomas Dorsey, initially used with XO charts but adaptable to regular charts.

  • The Calculation:
    •  RSD = (close / close_index) * 100
  • Interpretation of RSD:
    • Rising RSD indicates stock outperformance while declining RSD suggests underperformance, irrespective of stock price movement.
    • Typically compared with S&P 500 index, using ETF ‘SPY’, where SPY’s RSD remains constant at 100.
  • Application:
    • Used to assess whether a stock outperforms or underperforms the market.
    • Identifying Relative Strength breakouts to indicate when a stock begins to outperform.
    • Analyzing sector strength relative to the overall market and comparing individual stocks within sectors.
  • Example: (AAPL, Daily)
    • In period 1, we see price moving in lockstep with the RSD indicator. As AAPL is increasing, so too is the index.
    • In period 2, both AAPL and the index sell-off, however at the end of this period, AAPL makes an equal high while the index makes a higher high. This is visualized by the RSD indicator making a lower high to represent that relative weakness. This is a clear sign that AAPL is not participating in the index strength and is a signal to watch it for further underperformance.
    • In period 3, that underperformance is confirmed. As the index has continued to push higher, AAPL has stalled and pushed lower, visualized by the further deterioration of the RSD indicator.

Mansfield Relative Strength (RSM)

The Mansfield Relative Strength indicator was originally popularized in “Secrets For Profiting in Bull and Bear Markets” by Stan Weinstein and is primarily applied to weekly charts. It utilizes the Dorsey Relative Strength indicator in its calculation.

  • The calculation:
    • RSM = ((RSD(today) / sma(RSD(today), n)) – 1) * 100
    • RSD – Dorsey Relative Strength
    • SMA – Simple Moving Average over ‘n’ days
  • Interpretation of RSM:
    • Above zero indicates strength relative to the index, and below zero indicates weakness.
    • Positive values signify RSD above its moving average, negative values indicate RSD below its moving average.
  • Application:
    • Used to assess whether a stock is performing better than the market, focusing on the direction of the indicator.
    • Weinstein advocated for using RSM on weekly charts with an ‘n’ value of 52, emphasizing the importance of rising RSM alongside breakout signals.
    • RSM allows for identifying stocks with values above 0, indicating outperformance against the market, or below 0, indicating underperformance against the market.
  • Example: (NVDA, weekly/monthly)
    • In period 1, we see the asset is initially outperforming the index. This is visualized by the indicator being above the zero line and green. It hits a peak, representing the strongest moment of outperformance, and then begins to retrace back toward the zero line. It retests the zero line, suggesting the asset performance is briefly equal to that of the index.
    • In period 2,  the price moves below the zero line, but tests it several times. This indicates that the asset is underperforming the index, generally speaking, but has moments in which its performance is equal. At the third highlight, the indicator regains the zero line briefly, suggesting the potential for a trend change. A higher low is then put in just before the end of this section.
    • In period 3, the asset begins to outperform the index once again. As the asset consolidates, index performance catches up. This is visualized at the downward-sloping arrow as peaks with lower highs. When the asset breaks out from the consolidation, the indicator turns up sharply, showing the strongest period of outperformance.