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Richard D. Wyckoff 1873—1934

Relative strength (Wyckoff)

Stock-to-index comparison: step 2 of the method, buying test 7 and selling test 4, useful when assessing reaccumulation and distribution.

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Who this entry is for — Anyone picking «strong» stocks by looking at the chart in isolation. Wyckoff compares the candidate with the index: in markup the method seeks leaders; in markdown it seeks laggards. This is one of the filters used to distinguish reaccumulation from distribution, not a confirmation on its own.

Reference basis: modern Wyckoff teaching documents the stock-to-market comparison in step 2. In the checklist reproduced by StockCharts it is buying test 7 and selling test 4, so the number is not the same on both sides. Full references appear at the end of this entry.

Prerequisites

Five Wyckoff steps (step 2 — Selection) and Three laws.

Definition

In plain terms — Does the stock rise more than the market and fall less? It has relative strength and may become a long candidate if structure and context agree. Does it rise less and fall more? It has relative weakness and may become a short candidate under the same conditions. The tide matters as much as the wave.

Relative strength in Wyckoff measures whether a stock outperforms or underperforms the reference index (S&P 500, FTSE MIB, sector) under the same market conditions. It is not Wilder's Relative Strength Index (RSI): it is a visual comparison or a ratio. The stock and index charts can be placed side by side, or the stock/index ratio can be observed; that ratio rises when the stock outperforms. In step 2 of the five-step approach, the Wyckoff tradition looks for long candidates with accumulation structure and relative leadership; for shorts, it looks for distribution and relative weakness. In the modern checklist reproduced by StockCharts, the comparison is buying test 7 and selling test 4.

Bias Relative strength required Operational signal
Long / accumulation Stock ↑ more than index; pullback ↓ less Bullish harmony
Short / distribution Stock ↓ more than index; rally ↑ less Bearish harmony
Reaccumulation vs distribution Leadership in markup strengthens the reaccumulation hypothesis Weakness after a rally strengthens the distribution hypothesis

Example — The index falls 3% in two weeks while stock A falls 0.8% over the same period and shows a reaccumulation range with an internal spring. Relative strength supports the reaccumulation hypothesis, but does not confirm it by itself. Stock B falls 3% like the index inside a «similar» range after a rally: the lack of leadership weakens the bullish hypothesis; structure, volume and market phase must decide.

How to measure it in practice

  1. Normalised overlay — same starting point on stock and index; whoever pulls away upward wins.
  2. Ratio line — stock/index rising = strength; falling = weakness.
  3. Wave comparison — highs, lows, rallies and reactions in the stock are compared with the corresponding points in the index; the stock's volume is read together with its own structure.

Relative strength does not replace Wyckoff structure (phases A–E, spring, SOS): a strong stock in a generally distributive market remains a risky long — step 1 takes priority.

Common mistake — Declaring «reaccumulation» on a range that looks constructive but underperforms the index for weeks. Without a relative-strength comparison, market context and the range structure, that label is not justified: the range could also be distribution.

Summary card
Step 2 (selection); buying test 7 and selling test 4
Tool Comparative charts or stock/index ratio
Long Relative leader
Short Relative laggard
Key uses Selection and a consistency check on the structure

Sources

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