Relative Strength is calculated as the price of the selected instrument divided by the price of a comparative benchmark.
The default benchmark is SPY, representing the S&P 500, but it is configurable. A user can instead select QQQ, a sector ETF or another relevant reference.
An upward RS line means that the instrument is outperforming the benchmark. A downward RS line means it is underperforming.
The indicator also applies a moving-average baseline to the RS ratio and evaluates:
whether RS is above or below the baseline;
whether the RS trend is rising or falling;
whether price and RS are moving together;
whether RS is improving ahead of price;
whether price is rising without RS confirmation;
whether the relationship is changing too frequently and becoming choppy.
This creates descriptive states such as:
RS trend
RS leads
Price leads
Pullback
Counter-rally
Downtrend
RS noise
Bear rally
These states describe the interaction between price and relative performance. They are not mechanical entry instructions.
There are two levels to this.
Within the Relative Strength indicator, the state labelled Pullback occurs when:
Relative Strength remains above its moving-average baseline;
price is not rising sufficiently over the selected lookback;
Relative Strength is also not currently improving.
In simple terms, the asset retains an underlying relative-strength advantage, but price and short-term RS momentum are resting or declining.
That label does not automatically mean the pullback is constructive or actionable.
The wider framework also asks:
Is the broader trend still intact?
Has important price structure held?
Is volatility easing or becoming destructive?
Is price at a normal location or still extended?
Is selling volume controlled?
Is there a clear invalidation point?
A constructive pullback is therefore an orderly reset within an intact trend, without meaningful structural damage.