The problem RS Rating solves
On any given day, 2,100+ NSE stocks are trading. Some are up 3%, others down 2%, others flat. Some have been drifting sideways for months while others are making multi-month highs. With this much noise, how do you identify which stocks are genuinely outperforming the market — not just today, but structurally?
That's the problem William O'Neil solved when he invented the Relative Strength Rating at Investor's Business Daily in the 1960s. He needed a single number that ranked each stock's price performance against every other stock in the market, weighted to favour recent momentum. The result is a 1–99 percentile rank that's still the clearest signal of institutional accumulation available to retail traders.
The exact RS Rating formula
Kasauti uses the same calculation O'Neil pioneered. The 12-month performance period is split into four equal quarters, with more weight given to recent performance:
RS Rating Calculation
- Q4 (most recent 3 months): 40% weight
- Q3 (3–6 months ago): 20% weight
- Q2 (6–9 months ago): 20% weight
- Q1 (9–12 months ago): 20% weight
RS Score = (0.4 × Q4) + (0.2 × Q3) + (0.2 × Q2) + (0.2 × Q1), then ranked 1–99 against all NSE stocks
The heavy weighting on the most recent quarter is deliberate. A stock that was a leader nine months ago but has been underperforming recently is no longer a leader — the recent quarter tells you where institutional money is going now, not where it was.
Why recent weighting matters
Consider two stocks: Stock A had a monster run 10 months ago (up 80%) but has been flat since. Stock B was up a modest 25% over 12 months but 20% of that gain came in the last 3 months. On a simple 12-month return basis, Stock A wins. On the 40/20/20/20 RS Rating, Stock B scores significantly higher — because its recent momentum signals current institutional interest, not past history.
This is the key insight: the RS Rating is a momentum filter, not a lookback filter. It tells you which stocks are outperforming right now, with recent performance weighted most heavily.
Critical distinction: RS Rating is cross-sectional (stock vs all other stocks). RSI (Relative Strength Index) is a time-series momentum oscillator (stock vs its own price history). They measure completely different things. An RS Rating of 90 means outperforming 90% of NSE stocks. An RSI of 70 just means the stock has risen quickly relative to its own recent trading range.
Three ways to use RS Rating on Kasauti
1. As a primary filter (RS Leaders preset): Kasauti's RS Leaders signal preset filters the entire NSE universe for RS Rating 90+. These are the top decile of momentum — the stocks institutional money is flowing into most aggressively. In O'Neil's research, the best breakouts came from stocks that were already in the top 10–15% of relative strength before their biggest moves began.
2. As a confirmation layer: After running any other methodology filter (Minervini, Darvas, Livermore), sort the results by RS Rating descending. The highest RS stocks in that filtered list are the priority setups. They're passing both the structural criteria and the relative strength test.
3. As a market health indicator: When the count of RS 90+ stocks drops sharply (say, from 200 to 40), the market is narrowing — only a few stocks are holding up. This is a signal to be more defensive, even if your favourite stocks still technically pass other filters.
What RS Rating doesn't tell you
RS Rating has two blind spots worth noting. First, it's purely price-based — it has no view on whether the strength is driven by earnings, sector rotation, speculation, or a bubble. A speculative smallcap running on retail enthusiasm can score RS 99 just as legitimately as a fundamentally excellent company. Second, RS Rating is lagging by definition — a stock's rating reflects what has already happened, not what will happen. Combine it with the stage classification and breakout criteria in other Kasauti filters for the most useful signals.