Stochastic RSI Indicator | Indicator Series

Traders are now giving attention to various trading indicators in order to maximize their earnings in various trading situations. With indicators such as the Stochastic RSI indicator developed by Tushar Chande and Stanley Kroll, it gets more comfortable trading with the ambition of maximizing your earnings.

The Stochastic RSI indicator (Stoch RSI) is regarded as a technical indicator that was developed with the objective of assisting traders in recording the strength and weakness of relative strength indicators ranging from zero to one or from zero to 100.

technical indicator

The indicator’s values are plotted as a line primarily to identify the overbought and oversold market trading conditions. With the stipulated formula of calculating the indicator’s values, traders can get an insight into the overbought or oversold markets and make appropriate decisions.  (Click this link to check when the next NFP is scheduled).

The momentum indicators informed the Stochastic RSI indicator (Stoch RSI) development to have a more sensitive indicator that is more concentrated on specific historical data other than going with general analytics of price changes.

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Features of Stoch RSI

  • Values range from 0-1or 0- 100 based on various chart configurations.
  • Primarily used to attest overbought and oversold markets
  • Make use of momentum indicators

Calculation of Stoch RSI

During the analysis of raw historical data, the use of the indicator gives an assurance that the data is more readily applicable for more analysis. In evaluating StochiRSI, the following method is applied.

Stochastic RSI = (RSI-Lowest RSI)/ (Max RSI -Lowest RSI)

Interpretation of Stochastic RSI

If the indicator’s value is below 0.2, it indicates that the market is oversold. On the other hand, if the indicator reports a value of more than 0.8, it is an overbought market situation. In cases where the value is below 0.5, it indicates that the market is trading low.

Comparison Between the Stochastic RSI and the Relative Strength Index (RSI)

Both indicators seem similar, but the StochiRSI applies a different formula in generating its values. Whereas the RSI is a price derivative, StochiRSI is its own or second derivative of price.

However, one of the main differences is that StochRSI moves very quickly from overbought to oversold or oversold to overbought, while RSI is a slow-moving indicator. None can be termed better than the other, just that StochiRSI is quicker than RSI. (Play around with tradingview’s advanced charts for free).

It all goes down to the trader’s decision-making process. If you have trust in the indicators, this is one of those that will move your trading prowess to the next level. For more insight about trading, please subscribe to tradingview.com and join the conversation with other traders.