Scanning for relative strength among different sectors or groups of related stocks has long been a favorite approach of institutional traders. By focusing on the strongest sectors (or weakest sectors, for short sellers), professional traders know they have a better chance of capturing continuation moves in stocks with the most momentum.

Individual active traders can profit from using sector-based analysis by trading stocks (on both intraday and swing-trading time horizons) in those sectors benefiting from money flow.

For intraday traders, the first essential tool for analyzing sector action is a sector percentage quote box, which should be distinct from any other stock quote displays on your trading screen. Figure 1 shows an example that includes the Nasdaq Composite index (COMPQ) and six major sectors: software (GSO), semiconductors (SOX), hardware (GHA), retail (RLX), Internet (GIN) and biotech (NBI).