Relative Strength in 2025: Smart Stock Selection for Australian Investors

In the fast-evolving Australian share market, investors are searching for a competitive edge. Relative strength, a classic yet increasingly relevant analytical tool, is making waves among traders and long-term investors alike in 2025. As new technology and market dynamics reshape how we assess stocks, understanding relative strength isn’t just a nice-to-have—it’s essential for those looking to outperform the market.

What Is Relative Strength and Why Does It Matter in 2025?

Relative strength measures how a stock performs compared to a benchmark—typically an index like the ASX 200 or a sector peer group. It’s a dynamic signal of market leadership, helping investors identify shares that are outperforming or underperforming their peers.

• Momentum Matters: In 2025, algorithmic trading and AI-powered funds are amplifying market trends, making momentum and relative strength analysis more crucial than ever.
• Policy Changes: The Australian Securities and Investments Commission (ASIC) has updated disclosure rules, making real-time performance and comparison data more accessible to retail investors.
• ETFs and Smart Beta: The surge in ETF products based on relative strength or momentum factors is reshaping how Australians build their portfolios.

For example, a mining stock that consistently outpaces the ASX 200 during market rallies and holds up better during dips demonstrates high relative strength—making it a target for both institutional and retail investors seeking alpha.

How to Use Relative Strength in Your Investment Process

Relative strength can be applied in a variety of ways, from short-term trading to long-term wealth building. Here’s how investors are using it in 2025:

• Stock Screening: Platforms like CommSec and SelfWealth now offer built-in relative strength rankings, allowing users to filter for top performers over customizable timeframes.
• Sector Rotation: As Australia’s economy rebalances around renewable energy, tech, and critical minerals, many investors are using relative strength to shift allocations into leading sectors and out of laggards.
• Risk Management: By monitoring for weakening relative strength, investors can spot early warning signs to exit positions before broader downturns.

Real-World Example: In late 2024, ASX-listed lithium miners surged ahead of the broader market as global EV demand rebounded. Investors who tracked relative strength metrics were quick to spot the trend, riding the rally while many others hesitated.

Key Tools and Metrics for Relative Strength Analysis

Relative strength isn’t a single metric—it’s a toolkit. Here are the most popular approaches in the current landscape:

• Relative Strength Index (RSI): Still widely used, the RSI helps flag overbought or oversold stocks, but in 2025, most investors combine it with other signals to reduce false positives.
• Price Ratio Charts: Comparing the price movement of a stock to its benchmark (e.g., BHP vs ASX 200) with simple ratio charts is now easier thanks to updated brokerage software.
• Custom Screeners: New fintech platforms let users build custom relative strength models, incorporating AI-driven pattern recognition for deeper insights.

With more data at your fingertips, it’s now practical for individual investors to adopt strategies once reserved for the pros.

Trends and Cautions for 2025

While relative strength is a powerful tool, it’s not foolproof. In 2025, increased market volatility—driven by global macro uncertainty and rapid sector rotations—means that trends can reverse quickly. Here’s what to watch for:

• Chasing Winners: High relative strength can attract “hot money,” making some stocks vulnerable to sharp reversals. Set clear exit rules.
• Market Breadth: Look for confirmation that strength is broad-based, not isolated to a handful of speculative names.
• Integration with Fundamentals: Combine relative strength with earnings growth, balance sheet health, and sector outlooks for a robust approach.

The latest ASIC investor education campaigns even spotlight the importance of combining technical and fundamental analysis, reflecting a shift towards more holistic investing in Australia.

Conclusion

Relative strength is more than a buzzword—it’s a practical edge in the increasingly data-driven Australian market. With new tech tools, policy changes, and a vibrant trading environment in 2025, now is the time to incorporate relative strength into your investing toolkit. Whether you’re building a diversified ETF portfolio or actively trading ASX blue chips, mastering this technique can help you stay ahead of the curve.