Relative Rotation Graph has solved these problems with quadrants coded with different colors, statistics and animation features (can run as animations) help traders. easier in keeping track of the big picture.

The external structure of RRG

The outer structure of the graph consists of 1 square and is further subdivided into 4 different squares. You notice that 4 letters are located in the 4 corners of the graph, which have the following meanings:

  • Leading (Green) - the relative strength of the asset relative to the milestone is strong and the momentum is also strong
  • Weakness (Gold) - the relative strength of comparables vs. milestone assets is strong but momentum has weakened
  • Delay (Red) - relatively weak strength and weak momentum
  • Improvement (Blue) - Relatively weak strength but momentum is improving
What do these all mean? It means that, if an asset is in the blue or green zone, it shows it's a STRONGER asset compared to the comparator, and of course, if we want to buy up, please choose these properties. Conversely, if an asset falls in the yellow or red zone, it indicates that it is or will be LOWER relative to its comparison, in which case we would choose not to buy or sell.

Above is a more specific chart with numbered positions, in which:

1. The relative strength line (A bit more, there will be a different graph below)

2. The chart of the "Milestone Asset" or the compared asset (in this example, the S&P 500)

3. Slider "Length of tail" - used to change the length of line 1. The above example is 8 weeks, if you decrease 1 week, then the road 1 will be shortened by 1 segment.

4. Ratio controls as well as animation. You press the button "Animate" it will run an animation, showing the change in correlation with the number of years on chart 2 (Place 3 years - 3 years) as shown below!

5. Symbolic tables of assets or indices for which correlation strength is required.

6. Chart configuration change buttons: Symbol of comparison asset, Landmark property for comparison (benchmark), Group, Year, Timeframe (This is like the timeframe on the normal graph, it has Daily and Weekly) and Update Button.

7. Resize icons (enlarge, reduce)

8. Additional Resources.

Above is a specific example for you to imagine:

Take the XLU trail as a guide, that tail shows the correlation of the utility industry compared to the general market, SPX, each white dot it will represent 1 week (if you adjust above the box time frame to daily, 1 dot is 1 day). Because "Tail Length" - "Tail Length" is 12 weeks, the distance from the beginning to the end is 12 weeks. So in the past 12 weeks, Utility Index has started to weaken both in momentum and relative strength compared to SPX (SPX increased, XLU decreased or SPX increased strongly but XLU increased extremely slowly or not). So first, when choosing to buy stocks, we have to throw aside the utility industry in this case.

So, in this case, we should choose to buy stocks in any industry? XLF - or the financial sector is the leading group (The head is in the green area), however, the momentum is tending to slow down and move into the Weakness zone, so for this group, we are temporarily long positions will remain long, but should change the position to gradual liquidation. In addition, XLP - the essential consumer goods industry that is showing a shift in momentum - we should keep an eye on this sector!

Where to use this graph?

There are many places that provide this graph, even Bloomberg does, but it's better to spend at Stockcharts.