An RRG looks intimidating but is simple once you know what the two axes mean.
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Horizontal axis = relative strength: how a sector (or stock) is doing versus the broader market. Right = stronger than the market, left = weaker.
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- Vertical axis = momentum: whether that relative strength is picking up or fading. Up = improving, down = slowing.
Put them together and you get four quadrants:
- Vertical axis = momentum: whether that relative strength is picking up or fading. Up = improving, down = slowing.
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Leading (top-right): strong and still gaining - today’s outperformers.
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- Weakening (bottom-right): still strong, but momentum cooling - often the next to fade.
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- Lagging (bottom-left): weak and still losing ground.
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- Improving (top-left): weak, but momentum turning up - often the next to recover.
The useful part is the rotation. Sectors tend to travel clockwise over time: Improving to Leading to Weakening to Lagging and back. So it is not just a snapshot of who is winning today; it hints at where money may be rotating next.
- Improving (top-left): weak, but momentum turning up - often the next to recover.
Two things people get wrong:
- It is relative, not absolute. A sector in Leading can still fall if the whole market falls - it is just falling less than others.
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- One reading means little. What matters is the direction of travel (the tail), not a single dot.
A simple version of the four quadrants is attached. How do others here use RRG - as a top-down sector filter, or more for timing entries?
- One reading means little. What matters is the direction of travel (the tail), not a single dot.
