Summary
In this chapter, we outlined the benefits of switching from absolute OHLC prices to the relative series. Absolute participants are laggard indicators while relative players lead the pack. Market participants who adopt the methodology outlined in this chapter will have a distinct edge. They will be able to build and liquidate positions ahead of the crowd. They will look like prescient investment geniuses. They will have more ideas to choose from. Their portfolios will have lower correlation to the markets, and lower volatility as well. These are traits investors are looking for.
Once all stocks are rebased relative to the benchmark in fund currency, the next step is to reclassify the investment universe according to their regime: bullish, bearish, sideways. We take this up in the next chapter.
