The diamonds in the chart are made from the crossing of up slope lines and down slope lines.
There are two ways we can rank the location of a diamond
(1) Type I Ranking: The distance to the critical up trend line (the more above the up trend line, the higher the ranking).
(2) Type II Ranking: The distance to the critical down trend line (The more above the down trend line, the higher the ranking)
Compare JNY and SBUX below: For JNY, the distance to up trend line is 3 (UP=3, 3 is normalized number, no unit), and the distance to down trend line is 6 (DN=6). For SBUX, UP=4, DN=5. So for Type I ranking , SBUX is higher, while for Type II ranking, JNY is higher. Since the market has been in uptrend past year, so the Type I ranking is long term ranking, and Type II is more or less intermediate term.
I will use Thomas N. Bulkowski’s industry group as a starting point. (I may modify the components in each industry group in the future).
Tom publishes the ranking based on 6 month relative strength in his website. Tom has also an intensive study about how to use the ranking.
Tom states “If you buy all of the stocks in the industry ranked 1 for performance and hold them until the rank fell below 14 (and sell them), you would have made an average of 28.1% from 1/1/1995 to 11/9/2007. The S&P 500 index, over the same hold time, gained an average of just 2.3%. There were 114 trades made during that period.”
The Type II ranking on 4/27/2010 is shown below:
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