Why the Stocks That Fall the Least Are the Ones That Run the Hardest: Relative Strength as a Leading Indicator for ASX Momentum Traders
- Christopher Hall
- 3 days ago
- 17 min read
Written by Christopher Hall, AdvDipFP | Authorised Representative, AFSL 526688 | Updated April 2026 Analysis sourced from Gary Glover (AR 259215), Authorised Representative, Novus Capital Limited (AFSL 238 168)
Relative strength — measuring how an ASX stock performs compared to the broader market — is the single most reliable leading indicator for identifying the next momentum leaders before a rally begins. The stocks that lead every recovery are not the biggest bouncers from the bottom. They are the stocks that barely fell during the decline. Holding near their 52-week or quarterly highs while the index drops, they signal institutional support. When the market turns, these stocks do not need to recover lost ground. They are already positioned to move first and move furthest.
Why Do Momentum Traders Default to Buying Weakness When the Data Says the Opposite?
Every market selloff produces the same pattern of behaviour. Prices fall, familiar names become cheaper, and the instinct to buy the discount takes hold. It feels rational. It mirrors the logic that works in everyday life — wait for the sale, get more for less. In momentum markets, this instinct is consistently and demonstrably wrong.
The academic evidence is unambiguous on this point. Jegadeesh and Titman's foundational research, published in the Journal of Finance in 1993, documented that stocks with strong prior 6–12 month returns outperformed weaker stocks by 12.01% annually over the following year. The winners kept winning. The laggards kept lagging. This momentum persistence effect has been replicated across markets and timeframes for over three decades.
Gary Glover, whose anecdotal observations across his trading career align with this academic finding, describes the psychological battle directly:
"Our brains want to buy low but the reality is that we know it's twice as likely to be lower the next day if it was heading lower the previous day."
The difficulty is not understanding this intellectually. Most momentum traders with a year or two of experience can recite the principle. The difficulty is applying it under pressure — particularly during a sharp, fast rally where FOMO accelerates decision-making and the stocks that have already run look impossibly extended. As Gary notes:
"It takes a while for your brain to accept it and come around to it. You almost do battle with it."
The solution is not willpower. It is a systematic process that makes the right decision the default one. That process begins with understanding what relative strength actually measures — and why it points to leaders before they become obvious.
For a deeper look at why process consistently outperforms opinion in momentum trading, see Why Gary Glover's Trading Philosophy Emphasises Process Over Market Opinions. The psychological foundations of this approach are explored in 3 Key Lessons from Trade Like a Stock Market Wizard.
What Does Relative Strength Actually Measure on the ASX?
Relative strength (RS) measures a stock's price performance compared to the broader market over a defined period, standardised to a score between 0 and 99. A score of 95 means the stock has outperformed 95% of all other stocks over the measurement period. It is not the same as the Relative Strength Index (RSI), which is an internal momentum oscillator measuring the speed of a stock's own price change. RS is comparative. RSI is self-referential. They serve different purposes.
The academic research on why RS matters is substantial. Moskowitz and Grinblatt, writing in the Journal of Finance in 1999, demonstrated that industry momentum accounts for 60–73% of individual stock momentum profits. The sector a stock belongs to — and how that sector is performing relative to the market — explains the majority of whether an individual momentum trade succeeds. Stock selection, by comparison, explains less than a third of the outcome.
Gary Glover's anecdotal observation across his trading career echoes this finding. In his experience, 70–80% of stocks making new 52-week highs on the ASX on any given day are the same names as the session before. The leaders persist. The list of top performers barely changes from day to day, which means the work of identifying RS leaders is cumulative — once identified, they remain relevant until their behaviour changes.
Gary describes what this looks like in practice:
"Nine out of nine the leaders were all up last night... you look at them on the chart and you go, 'Oh man, they look so far extended.' But you're just really waiting for them to have a pause, tighten up, not give up much and then go again."
He also identifies two distinct forms of relative strength that a trader needs to track simultaneously:
"There's two forms of relative strength — basically the strength versus the overall market... and then the second form of strength is when you see that rocket ship, that impulsive move where the stock comes out of the low guns blazing."
Long-term RS leadership identifies the stocks that have consistently outperformed. Short-term explosive strength — the impulsive move on heavy volume — identifies the stocks generating fresh institutional interest. The highest-probability setups combine both: a stock with sustained RS leadership that then produces an explosive move and consolidates constructively.
For a detailed breakdown of the screening criteria that surface these stocks, see Mark Minervini's Stock Screener: What Indicators and Criteria Does He Use? and ASX Momentum Trading Returns: 72% of Stocks Above 50-Day Moving Average. Christopher Hall's full background and methodology are outlined at About Christopher Hall.
How Does Relative Strength During a Decline Signal Who Leads the Next Rally?
The most useful application of relative strength is not identifying leaders after a rally — it is identifying them during the decline that precedes it. This is where the structural edge exists, and where the difference between chasing and positioning becomes concrete.
During a market decline, institutional money does not exit every stock equally. It exits the weakest positions first and holds — or quietly accumulates — the positions it intends to ride into the next advance. The stocks that reflect this are the ones that hold near their highs while everything else falls. They are not immune to selling pressure. They simply experience far less of it, because the sellers with conviction have already moved on to weaker names.
This behaviour clusters by sector. Moskowitz and Grinblatt's research established that industry momentum is not a coincidence — stocks within the same sector move together because institutional capital allocates at the sector level before it allocates at the stock level. When multiple stocks from the same sector hold relative strength simultaneously during a decline, they are reflecting coordinated institutional positioning rather than random individual stock behaviour.
The FMP Launch Pad — a component of the FMP Momentum Profile, published daily and accessible to FMP YouTube Momentum Profile members — tracks exactly this phenomenon. When three or more stocks from the same thematic sector appear on the Launch Pad simultaneously, it signals that sector is receiving institutional attention ahead of the broader market. The FMP Momentum Profile data across recent ASX market cycles shows the average time from a confirmed sector cluster signal to confirmed market leadership is approximately 22 sessions — roughly four weeks — with the range running from 17 to 25 sessions depending on broader market conditions at the time of the cluster.
At the time of the 10 March 2026 session, the FMP Momentum Profile showed only 34% of ASX conditions were favourable for momentum trading. In that environment — where the index had rallied sharply and most stocks were already extended — sector clustering on the Launch Pad became the primary filter for identifying where the next genuine leaders would emerge.
Gary Glover's anecdotal observation across his career is direct on this point:
"If I see three or four names on there from the same sector, then that's getting my attention because that tells me that there's a shift or money is moving into that sector."
He also describes why sector context matters beyond individual stock analysis:
"It's 50% more likely to go up if you're in a sector... so it's really important if you're seeing the sector show strength."
For a deeper exploration of how sector clustering functions as a leading signal, see Launch Pad Themes: Finding Emerging Opportunities Before the Market and How Mark Minervini Finds High-Probability VCPs: The ASX Sector Strength Method. For an explanation of why standard GICS classifications can obscure these thematic clusters, see Why GICS Classification Fails ASX Momentum Traders: The Thematic Solution. The academic case for sector-first screening is developed further in Mark Minervini VCP Patterns: Why Sector and Thematic Filters Matter More Than Stock Selection.
What Separates a Genuine Relative Strength Leader From a Temporary Bounce?
Not every stock that holds near its high during a decline is a genuine RS leader. Some stocks simply lack the liquidity to attract sellers. Others are in sectors receiving defensive rotation that will unwind quickly when conditions normalise. Volume is the signal that separates institutional conviction from passive inertia.
A genuine RS leader accumulates volume on up days and shows contracting volume on pullbacks. The up days are larger, more frequent, and better supported than the down days. The pullbacks are shallow — the stock gives back little of what it gained. This is the signature of institutional accumulation: large buyers absorbing supply without advertising their position.
Distribution looks different. Heavy volume arrives into a brief rally. The stock gaps up on news or market momentum, generates excitement, and then encounters selling that absorbs every bid. The price stalls. Volume on the up day is the largest in the sequence, but the stock fails to hold its gain. Gary Glover describes this pattern precisely:
"Not only moving big but trading big... we want to see the money, we want to see the volume."
When Gary reflects on where his largest gains have come from across his trading career, the answer is consistent:
"The biggest money I've made is just trading the biggest names in each sector... take out all the other rubbish and just trade those biggest names."
William O'Neil, founder of Investor's Business Daily and one of the most studied practitioners of RS methodology, expressed the same principle in direct terms: all stocks are bad — only the good ones go up. Gary references this directly in session. The implication is that the starting point for any momentum analysis is not hunting for cheap stocks with recovery potential. It is identifying the stocks already demonstrating, through price and volume behaviour, that institutions have decided they are worth owning.
Past performance is not a guarantee of future results, and all trading involves risk. The volume and price patterns described here are educational frameworks, not predictions of future stock behaviour.
For a full breakdown of how the 50-day moving average functions as a structural filter within this framework, see The 50-Day Moving Average Trading System: How One Line Captures 70–80% of Major ASX Moves. For the cup and handle pattern that frequently forms during RS leader consolidations, see Cup & Handle Patterns: Why 40% of ASX Momentum Leaders Form This Setup. Sector rotation dynamics across longer timeframes are explored in Understanding Vertical Trends and Sector Rotation: Advanced Trading Lessons from ASX Growth Stocks.
How Does Relative Strength Lead to a VCP Entry Setup After a Market Rally?
Identifying an RS leader is the first step. Knowing when to act on it is the second — and it is where the step-and-stair model provides the structural answer.
An RS leader that produces an impulsive move on strong volume does not immediately offer a low-risk entry. The move has happened. The stock needs time to consolidate what it has gained, allow shorter-term holders to exit, and give the moving averages time to catch up with the price. This consolidation period — provided it is constructive — is where the next entry forms.
Gary Glover describes what to look for during this pause:
"When all the moving averages actually converged... that's always a pretty interesting area. Once you see them coming together again — that's where you're coming out of the coil."
And on the conceptual framework that underlies the process:
"As Calamari says — the step and stairs. We've taken that step up, now we're having a pause. Our job is to identify when it's about to take the next step up."
This is precisely the structure that a Volatility Contraction Pattern (VCP) captures. The impulsive move is the launch. The constructive consolidation — progressively tighter pullbacks on declining volume, moving averages converging — is the coil. The breakout above the pivot point, on volume confirmation, is the next step.
Mark Minervini's principle that a trader should be invested for the least amount of time for the maximum gain applies directly here. An RS leader consolidating after an impulsive move is the optimal entry window — not the initial breakout, and certainly not the chase after the rally has already extended. In Gary Glover's anecdotal experience across his trading career, a well-executed trade within this framework — entering on the coil and exiting as the move extends — can deliver significant percentage gains within a compressed timeframe.
For the complete identification framework, see How to Identify VCP Patterns on ASX Stocks: The 3-Stage Australian Market Adaptation. Entry mechanics, position sizing, and exit rules are covered in VCP Trade Execution on ASX: Minervini's Entry, Position Sizing & Exit Strategies. The line of least resistance concept — which determines where the pivot point sits — is explained in Understanding Line of Least Resistance in VCP Patterns. For the B-wave entry variant Gary uses within this framework, see B-Wave Trade Checklist: 3 Conditions ASX Momentum Traders Need.
How Do Momentum Traders Screen for Relative Strength Leaders on the ASX?
The following five steps represent the systematic screening sequence Gary Glover applies to identify RS leaders on the ASX. These are sequential actions, not a checklist to run in parallel — each step narrows the field before the next is applied.
Step 1 — Rank by Relative Strength score
Filter the ASX for stocks ranking in the top 20% by RS score relative to the broader market over the prior quarter. This single filter reduces approximately 2,000 ASX names to a working list of 100–180 candidates — the stocks that have materially outperformed the index over the measurement period.
Step 2 — Confirm position above the 50-day moving average
Remove any stock trading below its 50-day moving average. The 50-day is the structural line that separates stocks in confirmed uptrends from those still working through distribution or base-building. Only stocks above this line qualify for further analysis.
Step 3 — Check proximity to the quarterly or annual high
Prioritise stocks within 10–15% of their 52-week or quarterly high. A stock holding near its high while the broader market sells off is demonstrating the exact behaviour that characterises institutional accumulation. These are the leaders — not the recovery candidates still fighting through overhead supply.
Step 4 — Identify sector clustering
Note whether three or more stocks from the same thematic sector appear in the filtered list simultaneously. A cluster of four or more names from the same sector signals that institutional money is rotating into that theme ahead of the broader market's awareness. Gary Glover's anecdotal observation across his trading career is that four names is meaningful; six is a very strong signal.
Step 5 — Scan for moving average compression
Within the filtered list, identify stocks where the short-term moving averages — the 10-day and 21-day — are converging toward the 50-day. This compression, or coil, indicates that price volatility is contracting after an impulsive move. Combined with RS leadership and sector strength, it marks the strongest candidates for the next entry.
For the complete weekly scanning workflow, see How to Scan the ASX for VCP Patterns Every Week (Step-by-Step). Building and maintaining a watchlist from this output is covered in Building a VCP Watchlist: Criteria and Monitoring Process. The full Momentum Profile filter system that contextualises these screens within broader market conditions is explained in How to Find the Best ASX Stocks When the Market Turns: The Momentum Profile Filter System.
Frequently Asked Questions — Relative Strength and ASX Momentum Leadership
What is relative strength in ASX momentum trading?
Relative strength in ASX momentum trading measures how a stock's price has performed compared to the broader market — typically the ASX 200 or All Ordinaries — over a defined period, usually the prior quarter. It is standardised to a score between 0 and 99, where a score of 90 means the stock has outperformed 90% of all other stocks over that period. Stocks with RS scores above 70 are considered to be in the leadership tier. Stocks with scores above 90 are the top performers in the market. The RS score is recalculated continuously as prices change, making it a dynamic rather than static measure.
Why do the stocks that fall the least tend to lead the next ASX rally?
Stocks that hold near their highs during a broader market decline are demonstrating that institutional buyers — fund managers, superannuation funds, and professional traders — are maintaining or adding to their positions rather than selling. These stocks carry no overhead supply: there are no trapped buyers waiting to sell at breakeven the moment the price recovers. When market conditions improve and buying returns broadly, these stocks do not need to fight through layers of sellers before making new highs. They are already positioned at the front. Jegadeesh and Titman's research (Journal of Finance, 1993) confirmed this persistence effect — strong stocks continued outperforming by 12.01% annually over the following year.
Is relative strength the same as the RSI indicator?
No. Relative strength and the Relative Strength Index (RSI) are different tools that measure different things. Relative strength is a comparative measure — it shows how a stock has performed against the broader market or a benchmark index over a defined period. A high RS score means the stock has outperformed most other stocks. RSI, developed by J. Welles Wilder, is an internal momentum oscillator that measures the speed and magnitude of a stock's own recent price changes on a 0–100 scale, regardless of how other stocks are performing. Momentum traders use RS for stock selection and sector identification. RSI is most commonly used to identify overbought or oversold conditions within an individual stock's own price history.
How many stocks from the same sector need to appear on the Launch Pad before it becomes a meaningful signal?
Based on Gary Glover's anecdotal observations across his trading career, three names from the same thematic sector appearing simultaneously on the FMP Launch Pad is notable and worth monitoring. Four names is a meaningful signal that warrants active attention. Six names is a very strong cluster signal. The underlying reason is that institutional capital allocates at the sector level before it allocates at the stock level — when multiple names from the same sector move together during a decline, holding near highs while the index falls, it reflects coordinated positioning that rarely occurs without a structural reason. Moskowitz and Grinblatt's research (Journal of Finance, 1999) established that industry momentum accounts for the majority of individual stock momentum returns, which is why a sector cluster carries more weight than any individual stock signal in isolation.
How long does it typically take for a Launch Pad sector cluster to translate into confirmed market leadership?
The FMP Momentum Profile — published daily and accessible to FMP YouTube Momentum Profile members — has tracked this pattern across ASX market cycles. The average time from a confirmed sector cluster on the Launch Pad to confirmed market leadership is approximately 22 sessions, or roughly four weeks. The range runs from 17 to 25 sessions, with the speed of transition depending on the broader market signal strength at the time of the cluster. A cluster forming in a market where conditions are already improving will typically move faster than one forming in a constrained or choppy environment.
Can relative strength screening be applied to ASX small-cap and micro-cap stocks?
Relative strength scoring can be applied across the full ASX universe including small-cap and micro-cap stocks. However, two additional filters become essential at the smaller end of the market. The first is average daily range (ADR) — a measure of how much a stock typically moves in a single session. Gary Glover's approach screens for minimum ADR thresholds to ensure a clean exit is available when required. The second is liquidity — stocks with insufficient daily turnover create exit risk that overwhelms any technical advantage the setup might offer. The RS leadership framework is most reliable when applied to stocks with sufficient liquidity to absorb a meaningful position without significant market impact.
What is the difference between a genuine relative strength leader and a stock that has simply bounced from a low?
The distinction is structural. A genuine RS leader never gave up much ground in the first place — it held near its highs, absorbed the selling during the decline, and carries no overhead supply. A stock bouncing from a low has a different problem: it must work through every trader who bought at higher prices and is waiting to exit at breakeven. Volume confirms which situation applies. Genuine accumulation shows rising volume on up days and contracting volume on pullbacks. Distribution into a rally shows the heaviest volume arriving into the move — often on the biggest up day — as sellers absorb the demand generated by excitement and news. The price then stalls or reverses despite the apparent strength.
The Mindset Shift That Makes the Process Work
The core principle of relative strength ASX momentum trading is not complicated. It is uncomfortable. The brain reliably produces the wrong instinct — to buy what has fallen and feels cheap — and the market reliably punishes that instinct in momentum conditions. The stocks that lead the next rally are already identifiable before the rally begins. They are the ones holding near their highs, clustering by sector on the Launch Pad, and showing the volume signature of institutional accumulation rather than retail excitement.
The process is systematic: filter by RS score, confirm the 50-day moving average, check proximity to the quarterly high, look for sector clustering, wait for moving average compression. Each step narrows the field from two thousand names to a handful of genuine candidates. The psychology is the barrier — not the mechanics.
For an ongoing view of which ASX stocks are currently demonstrating RS leadership, visit the FMP Momentum Leaders page. For traders who want to test and sharpen their pattern recognition before applying this framework to live markets, the free VCP quiz identifies gaps in technical knowledge. Common questions about momentum trading methodology are answered in the ASX Momentum Trading FAQ.
Bibliography
Primary Sources
Glover, G. (AR 259215), Authorised Representative, Novus Capital Limited (AFSL 238 168). Recorded market analysis session with Finer Market Points, 10 March 2026. All observations attributed to Gary Glover in this article are anecdotal practitioner observations developed across his trading career — not formal studies.
FMP Momentum Profile. Published daily. Accessible to FMP YouTube Momentum Profile members. All FMP Momentum Profile data cited in this article reflects readings at the time of the 10 March 2026 session.
Books
Minervini, M. (2013). Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market. McGraw-Hill.
O'Neil, W.J. (2009). How to Make Money in Stocks: A Winning System in Good Times and Bad (4th ed.). McGraw-Hill.
Peer-Reviewed Academic Research
Jegadeesh, N., & Titman, S. (1993). Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. Journal of Finance, 48(1), 65–91. https://doi.org/10.1111/j.1540-6261.1993.tb04702.x
Moskowitz, T.J., & Grinblatt, M. (1999). Do Industries Explain Momentum? Journal of Finance, 54(4), 1249–1290. https://doi.org/10.1111/0022-1082.00146
Ehsani, S., & Linnainmaa, J.T. (2022). Factor Momentum and the Momentum Factor. Journal of Financial Economics, 145(2), 671–693. https://doi.org/10.1016/j.jfineco.2021.09.007
Related Finer Market Points Educational Resources
Hall, C. (2026). How to Find the Best ASX Stocks When the Market Turns: The Momentum Profile Filter System. Finer Market Points.
Hall, C. (2026). Launch Pad Themes: Finding Emerging Opportunities Before the Market. Finer Market Points.
Hall, C. (2026). How Mark Minervini Finds High-Probability VCPs: The ASX Sector Strength Method. Finer Market Points.
Hall, C. (2026). Mark Minervini VCP Patterns: Why Sector and Thematic Filters Matter More Than Stock Selection. Finer Market Points.
Hall, C. (2026). Why GICS Classification Fails ASX Momentum Traders: The Thematic Solution. Finer Market Points.
Hall, C. (2026). How to Identify VCP Patterns on ASX Stocks: The 3-Stage Australian Market Adaptation. Finer Market Points.
Hall, C. (2026). VCP Trade Execution on ASX: Minervini's Entry, Position Sizing & Exit Strategies. Finer Market Points.
Hall, C. (2026). Understanding Line of Least Resistance in VCP Patterns. Finer Market Points.
Hall, C. (2026). The 50-Day Moving Average Trading System: How One Line Captures 70–80% of Major ASX Moves. Finer Market Points.
Hall, C. (2026). Cup & Handle Patterns: Why 40% of ASX Momentum Leaders Form This Setup. Finer Market Points.
Hall, C. (2026). B-Wave Trade Checklist: 3 Conditions ASX Momentum Traders Need. Finer Market Points.
Hall, C. (2026). ASX Momentum Trading: Frequently Asked Questions. Finer Market Points.
Hall, C. (2026). Understanding Vertical Trends and Sector Rotation: Advanced Trading Lessons from ASX Growth Stocks. Finer Market Points.
This article is based on analysis and commentary provided by Gary Glover (AR 259215), Authorised Representative of Novus Capital Limited (AFSL 238 168), during a recorded market analysis session on 10 March 2026. Content has been edited and summarised by Finer Market Points for educational purposes. Gary Glover has not independently reviewed or endorsed this publication.
This content is for educational purposes only and does not constitute financial advice. Past performance is no guarantee of future results.
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