The top 5 benefits of using relative power momentum investments are often overlooked in the desire to simply buy and make money either by stocks, ETFs or mutual funds. This, plus the fact that the name “relative momentum of power” sounds scary and that many people simply do not understand it.
As I wrote earlier, “Avoiding Mistakes with Relative Power Investing,” an RSM-based analysis takes momentum analysis a step further by performing a comparative analysis of how strong a stock or fund’s momentum is and even better, if properly set, how strong a particular ETF or fund is compared to others. This compelling RSM analysis therefore focuses on ticker symbols that are strong and have the potential not only to stay strong but also to continue to grow; and when they give up, the analysis signals that it is time to sell. ‘
Advantage # 1:
This is one of the most proven methods of technical analysis for finding consistent profitable investments.
Numerous books have been written about RSM, including Michael J. Carr’s final guide: Smarter Investing in Any Economy (currently sold out, but hopefully reprinted soon).
Advantage # 2:
RSM works for all types of investments:
- In the short term
- In the long run
- Mutual funds
Advantage # 3:
The formulas that give the best results can be implemented even if you are not technically savvy or a math expert because they are an integral part of easily accessible investment software.
Different formulas, all related, offer the opportunity to decide which way of RSM analysis provides you with a method of investing relative momentum that suits your goals and personality.
Carr tests seven different formulas for relative strength:
- Normalized rate of change (ROC)
- ROC with rear weight
- Front weighted ROC
- Price / moving average ratios
- Ratios of multiple moving averages
- Averaging different time periods
Advantage # 4:
Investment analysis alpha or any other RSM method can be easily combined with other buying and selling rules in personal investment software and investment advisor software.
These buying and selling rules include:
- It stops
- How long to keep the position
- Ranking to make sure the position is high among your group of ticker symbols
Advantage # 5:
You can perform a simple technical analysis with or without standard deviation (SD). By adding SD analysis you can, in fact, automatically be more conservative.
In fact, with or without SD, you can optimize any RSM calculation such as alpha to meet your conservative or moderate or even aggressive investment goals with the right investment software.
While the relative strength of the investment momentum sounds daunting, the benefits can lead to long-term growth in your portfolio, especially if you find personal investment software that transforms RSM into a few mouse clicks and allows you to compare potential profits and risks.