Traders will try to select winning stocks that have been performing better than the rest of the market to identify stocks with higher relative strength to others in the similar industry, and find industries and sectors that are in favor.
Traders can also easily identify stocks and sectors that are currently weak and out of favor when compared to the rest of the market, either to stay away from or might be undervalued.
Stocks that are relatively strong compared to a benchmark can point to positive momentum, where investment capital is flowing, while relatively weak stocks can point to companies or industries experiencing problems, and potential places to stay clear.