{"id":9539,"date":"2026-10-02T12:31:44","date_gmt":"2026-10-02T12:31:44","guid":{"rendered":"https:\/\/quantstrategy.io\/blog\/leader-or-laggard-using-relative-strength-to-find-winning\/"},"modified":"2026-10-02T12:31:44","modified_gmt":"2026-10-02T12:31:44","slug":"leader-or-laggard-using-relative-strength-to-find-winning","status":"publish","type":"post","link":"https:\/\/quantstrategy.io\/blog\/leader-or-laggard-using-relative-strength-to-find-winning\/","title":{"rendered":"Leader or Laggard? Using Relative Strength to Find Winning Stocks"},"content":{"rendered":"

Leader
\nIn the world of momentum investing, distinguishing between a Leader or Laggard? Using Relative Strength to Find Winning Stocks<\/strong> is the critical skill that separates top-tier traders from the crowd. As a cornerstone of Mastering the CAN SLIM System: A Comprehensive Guide to William J. O\u2019Neil\u2019s How to Make Money in Stocks<\/a>, the “L” represents the choice between market leaders and industry laggards. William J. O\u2019Neil\u2019s research proved that the best-performing stocks show superior price strength before their massive gains. By focusing on stocks with a high Relative Strength Rating, investors can identify companies outperforming 80% or 90% of the market, ensuring capital is parked in high-octane winners rather than stagnant underperformers.<\/p>\n

The Mechanics of the Relative Strength (RS) Rating<\/h2>\n

In the CAN SLIM methodology, the Relative Strength Rating is a proprietary measure ranging from 1 to 99. A rating of 90 means the stock has outperformed 90% of all other stocks in the market over the last 12 months. Unlike the Relative Strength Index (RSI), which measures overbought or oversold conditions, O’Neil’s RS Rating identifies pure price leadership.<\/p>\n

To successfully apply this, you should look for stocks with an RS Rating of at least 80, though the true “super performers” often have ratings of 90 or higher. This technical strength must be supported by fundamental factors, such as Understanding the ‘C’ in CAN SLIM: Analyzing Current Quarterly Earnings Growth<\/a> and The Power of Annual Earnings Increases<\/a>. When a stock’s price holds firm or rises while the general market corrects, it is showing “relative strength,” signaling it will likely lead the next bull run.<\/p>\n

Avoiding the Laggard Trap<\/h2>\n

Many novice investors fall into the trap of buying “cheap” stocks that have fallen significantly from their highs. O’Neil argues that these are “laggards” for a reason. Often, these companies lack Identifying New Products and Management<\/a> or suffer from poor Institutional Sponsorship<\/a>. Buying a laggard because it looks like a bargain is a recipe for underperformance.<\/p>\n

Compare the two types of stocks in this table:<\/p>\n\n\n\n\n\n\n\n\n
Feature<\/th>\nMarket Leader<\/th>\nMarket Laggard<\/th>\n<\/tr>\n<\/thead>\n
RS Rating<\/strong><\/td>\n80 to 99<\/td>\nBelow 70<\/td>\n<\/tr>\n
Price Action<\/strong><\/td>\nHitting new highs or near them<\/td>\nNear 52-week lows<\/td>\n<\/tr>\n
Market Correction<\/strong><\/td>\nDrops less than the indexes<\/td>\nDrops more than the indexes<\/td>\n<\/tr>\n
Industry Group<\/strong><\/td>\nTop 20 industry groups<\/td>\nBottom 50% of groups<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Practical Advice: How to Screen for Leaders<\/h2>\n

To find winning stocks, your screening process should prioritize those that emerge first from a market correction. During a market downturn, use Market Direction: How to Time Your Entries<\/a> to gauge the environment, then look for stocks whose RS lines are hitting new highs even if the price hasn’t yet. This is often the precursor to a breakout from The Cup with Handle Pattern<\/a>.<\/p>\n

Key Actionable Insights:<\/p>\n