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The background of Relative Rotation Graphs®

17.09.20-RRG-US-sectors-wgt

Relative Rotation Graphs slowly came to life while I was working as a sell-side technical analyst for an investment bank in Amsterdam.


Sell-side analyst

My job as an analyst (sell-side) was to cover European equities and equity sectors from a technical perspective and provide the clients of the bank with a technical "view" and generate trade ideas on the basis of that "view". Ultimately the bank would only generate money when the clients would actually put their orders through us and we could earn a commission on the execution of the trade. 

As only writing up your view in a report or an email and send it off was not enough to do the trick, every analyst had to communicate his/her view and ideas to the clients by presenting them.


Professional PMs are hard to reach

Sometimes this meant visiting clients in person but most of the time by getting on the phone. The big problem however was (and still is) that these clients, typically fund-/ portfolio managers, are very busy people with a lot of sell-side people battling for their attention. 

They are very hard to get a hold of which resulted in a lot of talking to voice mails. 

On the rare occasion that you would actually get the PM on the line they are usually very rushed and only interested in a very short pitch of an idea. But with the large universes that technical analysts usually cover, unlike their fundamental counterparts, it is very difficult to get your ideas across in a very condensed but clear way.


They have ONE job!

As the client base of an investment bank almost exclusively consists of professional fund- and portfolio managers who's job it is to "outperform" some sort of "benchmark" my work concentrated on Relative Strength analysis. 

Not to be confused with RSI (Relative Strength Index) which is a widely used technical indicator. Relative Strength here means the analysis of two securities against each other, or Comparative Relative Strength. 


What are your BEST five sectors, stocks, ...?

This is probably the most asked question by portfolio managers. 

As described earlier, the PMs on the buy-side are always very busy and they want the analysts on the sell-side to be short and to the point. 

So instead of talking through a whole universe of sectors the quickest way to pick someone's brain is to ask this question and see if one or more of the names that come out match with their own ideas to see if there is ground for a further discussion. 

So, what I was looking for was a way to "rank" a universe and answer that question. Ultimately this led to the creation of Relative Rotation Graphs® 


A new chart type

This new chart-type can now help the portfolio managers on the buy-side and the sales / trading people on the sell-side to quickly get a view of what is going on in their universe and point the discussion in the right direction.

For (prop) traders, hedge-fund managers etc. it is a great tool to very quickly generate trading ideas that are worth further inspection. 

RRG Desktop application (BETA)
The RS (Relative Strength) concept
 

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