StockCharts Technical Rank (SCTR)

What Is the StockCharts Technical Rank (SCTR)?

The StockCharts Technical Rank is a mathematical ranking for individual stocks in various groups — enormous capitalization (cap), mid-cap, small-cap, U.S. non-utilized, and non-backwards exchange-traded funds (ETFs), and Canadian stocks — showing the stock's overall strength in light of six technical indicators covering different time periods. The ranking method is called SCTR (articulated "bike") for short.

The SCTR was made by John Murphy, a technical analyst, and creator, and is accessible on Stockcharts.com.

Key Takeaway

• The Stockscharts Technical Rank (SCTR) relegates a value of zero to 99.99, which shows how a stock ranks in terms of technical strength.
• The ranking uses past price performance, in view of six technical criteria.
• A ranking of zero demonstrates the stock is the weakest in the group, technically talking. A rank of 99.99 demonstrates the stock ranks highest in terms of technical performance.
• A rising SCTR means the stock's price performance is showing strength relative to the group of stock being broke down. A decreasing SCTR shows disintegrating relative price performance.

Grasping the StockCharts Technical Rank (SCTR)

Investors pick the group they wish to break down, which gives a rundown of stocks inside that group ranked from zero to 99.99. A score of 99.99 means the stock is performing incredibly very much compared to its companions in light of the six technical criteria.

Zero is the weakest score, demonstrating the stock is seriously failing to meet expectations its companions in the group, according to a technical point of view.

A few traders might wish to buy strong stocks, or stocks with a rising SCTR ranking, while at the same time selling or shorting stocks that have a weak or disintegrating SCTR ranking. This depends on buying or selling relative strength or weakness.

A rising SCTR shows the stock is picking up speed against its companions. This means it very well may be expanding in value currently, or that it is holding up better or not falling as much as its companions. A falling SCTR shows the stock is losing momentum against its friends. The price might be dropping, or the price may essentially be lagging the price performance of its companions.

Every one of the indicators in the ranking system depend on price. Along these lines, the SCTR uncovers how the price performance of some random stock compares to other people.

The SCTR formula covers different time periods, and a stock must score well on every one of them to receive a high score. The most weight is given to the longer-term indicators, since the long-term trend is a more predominant force than short-term vacillations.

It is made utilizing the following formula and weightings:

• Long-Term Indicators (weighting): Percent above/below the 200-day exponential moving average (EMA) (30% weight) and the 125-day rate-of-change (ROC) (30% weight).
• Medium-Term Indicators (weighting): Percent above/below 50-day EMA (15%) and the 20-day pace of-change (15%).
• Short-Term Indicators (weighting): Three-day incline of percentage price oscillator histogram isolated by three (5%) and the relative strength index (5%).

The SCTR compares a stock to its companions, not to a specific benchmark like the S&P 500 index.

Illustration of How to Use the StockCharts Technical Rank

The SCTR is a highly flexible instrument. It tends to be utilized to filter stocks to find those that are exceptionally. This would aid a trader who is searching for stocks with bunches of current upside momentum.

On the other hand, the SCTR could be utilized to find stocks that are exceptionally weak, possibly ready for a turnaround, or that might introduce a decent value investing opportunity. Just in light of the fact that a stock has dropped in value, nonetheless, doesn't be guaranteed to mean it is worth buying.

A mixing of both these concepts is to search for stocks that have had low SCTR rankings yet that are getting to the next level. This shows the stock is as of late outperforming its companions. Like trading chart designs, traders can look for breakouts in the SCTR, for example, a move over a prior swing high or a move from below 30 to over 30 or 50 (or any desired level).

The following daily chart of Leggett and Platt (LEG) shows a number of trades in view of different types of breakouts in the SCTR. Some delivered great entry signals, while others created poor entry signals. Green bolts address buy sections, and red bolts address short passages.

Notice that a rising SCTR doesn't necessarily in every case show a rising share price. This is on the grounds that a stock's price can really drop, yet if the stock drops not exactly its companions, its SCTR will increase.

There are different ways of utilizing the SCTR, and many essentially opt to involve it as a confirmation device. For instance, to buy, they will hope to check whether the SCTR is expanding. In the event that it isn't, that means the stock isn't yet proceeding as well as its friends, and potentially one more stock in the group is stronger and thusly a better purchase. Buying before the SCTR begins expanding means the trader is anticipating that the stock should begin performing better, which it might possibly do.

The Difference Between the StockCharts Technical Rank and Relative Strength

The SCTR goes past contrasting one stock with another or contrasting a stock with an index, which relative strength does. The SCTR rank shows how strong a stock is, in view of the technical criteria, versus a group of different stocks. Relative strength might show you that one stock is beating the S&P 500 index, yet the SCTR shows how that outperformance compares to different stocks. The ranking feature makes the SCTR unique.

Limitations of the StockCharts Technical Rank

The SCTR value can change quickly. A stock that looks strong, say with a 99 SCTR, can have its rank cut in a day to approach zero on a big sell-off. Hence, the SCTR is a lagging ranking method. It shows past performance however doesn't demonstrate future performance.

As referenced, the SCTR can at times be deluding. It is a ranking system, so a stock may really be dropping in price yet at the same time have a rising SCTR. This doesn't be guaranteed to mean it is a decent purchase. The SCTR is best used related to different forms of analysis, for example, price action, technical indicators, or chart designs.