StockCharts Technical Rank (SCTR): Assessing Technical Strength in Stocks
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Summary:
The StockCharts Technical Rank (SCTR) is a pragmatic numerical ranking system devised by technical analyst John Murphy. It evaluates a stock’s technical strength on a scale from zero to 99.99, considering six essential technical indicators across various time frames. Investors use the SCTR to discern a stock’s relative performance within its group, aiding in strategic decision-making. By delving into the SCTR’s formula, weighting methodology, and practical applications, finance professionals can harness its utility effectively. However, it’s imperative to recognize the SCTR’s limitations and integrate it judiciously with other analytical tools for well-informed financial strategies.
The StockCharts Technical Rank (SCTR), conceived by technical analyst John Murphy, emerges as a pivotal tool in evaluating a stock’s technical prowess. This numerical system, colloquially known as “scooter,” gauges a stock’s strength within various groups, employing six key technical indicators across different time frames.
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Key components of SCTR
The SCTR, with values ranging from zero to 99.99, provides a nuanced assessment of a stock’s technical robustness. A comprehensive understanding of the six technical criteria is pivotal:
Long-term indicators (30% weight each)
- Percent above/below the 200-day exponential moving average (EMA)
- 125-day rate-of-change (ROC)
Medium-term indicators (15% weight each)
- Percent above/below 50-day EMA
- 20-day rate-of-change
Short-term indicators (5% weight each)
- Three-day slope of percentage price oscillator histogram divided by three
- Relative strength index
How to use SCTR
Investors select a specific group for analysis, and the SCTR assigns rankings within that group. A score of 99.99 denotes robust technical performance, while zero signals pronounced underperformance. Traders leverage this data for strategic decision-making, identifying stocks with increasing SCTR for potential buying or spotting weak stocks for potential shorting.
Example of SCTR application
The SCTR’s versatility manifests in practical application. Traders use it to filter stocks based on strength or weakness, aiding in identifying potential opportunities. Monitoring SCTR breakouts, such as surpassing a previous swing high, yields valuable signals for informed entry and exit decisions.
Comparison with relative strength
Diverging from relative strength, which compares one stock to another or to an index, the SCTR assesses a stock’s strength within a specific group. While relative strength may highlight outperformance against an index, the SCTR nuances this by illustrating how the outperformance stacks up against other stocks in the same category.
Limitations of SCTR
Despite its utility, the SCTR has limitations. It can undergo rapid changes, with a high-ranking stock witnessing a swift decline, marking it as a lagging indicator reflecting past performance. Importantly, a rising SCTR doesn’t guarantee an ascending share price, underscoring the need to integrate it with other analytical tools for a comprehensive financial strategy.
Frequently asked questions
How is the SCTR calculated?
The SCTR calculates a stock’s technical strength based on six indicators, employing different weightings for long, medium, and short-term factors. The resulting numerical value ranges from zero to 99.99, indicating the stock’s standing relative to its peers.
Can the SCTR predict future stock performance?
No, the SCTR functions as a lagging indicator, reflecting historical performance without offering insights into future trends or performance.
How frequently does the SCTR value change?
The SCTR value can change rapidly, with a stock’s rank shifting dramatically, making it imperative for investors to monitor it closely and make decisions accordingly.
Key takeaways
- The SCTR, ranging from zero to 99.99, assesses a stock’s technical strength based on six indicators.
- Investors can use the SCTR to identify strong or weak stocks within specific groups for trading decisions.
- Understanding the formula and weightings enhances the effective use of the SCTR.
- Despite its benefits, the SCTR is a lagging indicator and should be used alongside other analytical tools.
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