The methods for finding trades vary far and wide. Some options trading investors rely on technical analysis to discover chart patterns providing low-risk, high-reward opportunities. Others take the more quantitative route by analyzing the fundamentals of a company in an attempt to identify those poised for rapid growth. And some traders adopt a hybrid approach where they monitor strong fundamental companies and trade them when a strategic entry point arises on the chart. Of all the tools at a chartist’s disposal, relative strength is perhaps one of the most popular.

Consider the following two stocks from a relative performance standpoint:

Freeport-McMoRan Copper & Gold (NYSE: FCX) increased 9.4% from its opening price in yesterday’s trading session while Hansen Natural (NASDAQ: HANS) increased 1.9%. Given these numbers, we could assert that FCX is outperforming HANS and FCX is exhibiting relative strength.

If you subscribe to the notion that strength begets strength and weakness begets weakness, then naturally you would look for bullish plays on FCX over HANS. The assumption is that the recent relative strength in FCX may indicate it will continue to perform well over the next few days. Traders using this type of analysis seek relatively strong stocks when bullish while shunning the relatively weak. When bearish they would seek relatively weak stocks while shunning the relatively strong.

There were a number of stocks which performed like champs in the face of yesterday’s ugly gap down in the indices, including Ford (NYSE: F). If the market rebounds, these may be stocks to watch.

Freeport-McMoRan Copper & Gold (NYSE: FCX)

Source: MachTrader

Follow Tyler Craig on Twitter@TylersTrading.