Find the Leaders: A Structured Approach to Relative Strength

Over time, I found myself returning to the same core question:

How do you consistently identify the strongest stocks in the market?

Not occasionally. Not based on opinion. But through a repeatable process.

After years of using various platforms and approaches, I simplified my workflow down to a few essential principles. From that process, I built a tool to support how I actually analyze the market each week.

This article outlines that process.

Watch the full walkthrough of the tool and process below:

The Starting Point: Relative Strength

Everything begins with relative strength.

At its core, relative strength measures how a stock is performing compared to the broader market, typically the S&P 500.

But that is only the first layer.

It also measures how that stock is performing relative to all other stocks in the market.

This concept is widely used and forms the foundation of many growth-oriented strategies.

The objective is straightforward:

Identify the stocks that are outperforming.

Not just outperforming the market, but outperforming their peers.

Rather than scanning thousands of names without direction, relative strength allows you to immediately narrow your focus to a subset of stocks that are already demonstrating leadership characteristics.

Refining the Universe

Before applying any ranking or filtering, it is important to define the universe of stocks being analyzed.

In my process, I exclude:

Stocks trading below a minimum price threshold
Illiquid securities with low average trading volume
Companies with very small market capitalizations

The goal is to focus only on tradable, institutionally relevant stocks. This step alone removes a significant amount of noise and improves the quality of results.

Ranking Strength Across Timeframes

Once the universe is defined, stocks are ranked based on their relative strength.

While traditional approaches often em

phasize a one-year timeframe, I found it useful to incorporate multiple timeframes, including shorter-term periods such as one month and three months.

This provides two advantages:

It highlights established leaders over longer periods
It helps identify emerging strength earlier in the cycle

By adjusting the relative strength threshold, the list of candidates becomes more concentrated and actionable.

Adding the Fundamental Layer

Relative strength alone is not sufficient.

To build conviction, it should be supported by underlying business performance.

For each stock, I evaluate:

Quarterly and annual earnings growth
Quarterly and annual sales growth
Profit margins
Return on equity
Institutional ownership trends

This step ensures that price strength is not occurring in isolation, but is supported by improving fundamentals.

For traders who prefer a purely technical approach, the tool can be used with relative strength alone.

However, for growth investors following a CANSLIM-style framework, these fundamental filters provide an additional layer of confirmation and help narrow the focus to higher-quality leaders.

Combining Strength and Structure

After narrowing the list based on relative strength and fundamentals, the next step is to evaluate technical structure.

This includes:

Price position relative to key moving averages
Trend alignment
Consolidation patterns and breakout setups

At this stage, the focus shifts from identifying strong stocks to identifying tradable opportunities within those stocks.

To streamline this process, I developed preset scans that combine these characteristics. For example, a “super performer” screen may include:

High relative strength
Strong earnings and sales growth
Price above key moving averages
Proper trend alignment

This reduces the list further and highlights only the most compelling candidates.

The Importance of Industry Groups

One of the most overlooked aspects of stock selection is the role of industry groups.

Strong stocks rarely operate in isolation. They tend to emerge within strong groups that are benefiting from broader market themes.

By analyzing industry group performance, it becomes easier to identify where institutional capital is flowing.

This provides important context.

Instead of evaluating a stock independently, it is evaluated as part of a broader ecosystem of strength.

To support this, the tool assigns a relative strength rating to each industry group and displays that group’s strength alongside individual stocks during the screening process.

This allows you to quickly determine whether a strong stock is also supported by a strong group.

Organizing the Process

Once potential candidates are identified, they are organized into a structured workflow:

Watchlist (stocks of interest)
Near pivot (approaching actionable levels)
Actionable (within a defined buy zone)

This creates a clear progression from idea generation to execution.

It also reduces the likelihood of impulsive decision-making, as each stock is evaluated within a defined framework.

Risk Management and Position Sizing

Identifying strong stocks is only part of the process.

Equally important is managing risk.

To support this, I incorporate position sizing tools that account for:

Account size
Risk per trade
Maximum portfolio exposure

This ensures that each position is aligned with an overall risk management strategy, rather than being sized arbitrarily.

Bringing It All Together

The goal of this process is not to create a perfect system.

It is to create a consistent and repeatable framework for identifying and acting on market leadership.

At a high level, the process can be summarized as:

Identify relative strength
Confirm with fundamentals
Evaluate technical structure
Align with strong industry groups
Manage risk appropriately

Each step builds on the previous one.

Final Thoughts

There is no shortage of tools, data, or opinions in the market.

The challenge is not access to information.

It is filtering that information into something usable.

By focusing on relative strength and layering in fundamentals, structure, and context, it becomes possible to consistently narrow the field to the stocks that matter most.

From there, execution becomes significantly more straightforward.

MTS Velocity