This indicator calculates the comparative strength between 2 variables by subtracting them instead of division/ratio. Example: A is stronger than B, then if A-B, it would be positive because value A is bigger than B. A is weaker than B, then when A-B, this would be negative because A is lower than B.
What it does: It takes the difference of averages of variable A (ie: stock), and the same for variable B (ie: index), and then the result of those is substracted to get a value.
Why is this indicator useful ? To visualise comparative values between 2 related variables. IE: stock-index, stock-commodities, forex-interest rates, forex-bond, forex-inflation.
DISCLAIMER: Nothing in this content should be interpreted as financial advice or a recommendation to buy or sell any sort of security, investment, currencies or assets.