Stochastic RSI (StochRSI)

Name Type Prerequisite Use Cases
Stochastic RSI (StochRSI) Momentum OHLC Data Identifying RSI reversals with high sensitivity.

Definition

The Stochastic RSI (StochRSI) is an indicator used to measure the level of the RSI relative to its high-low range over a set time period. It essentially applies the Stochastic formula to RSI values instead of Price values. This makes it a more sensitive indicator, capable of generating more overbought/oversold signals than the standard RSI.

Mathematical Equation

\[ \text{StochRSI} = \frac{RSI - \min(RSI)}{\max(RSI) - \min(RSI)} \]

Where the min and max are calculated over the lookback period (e.g., 14). The result is a value between 0 and 1 (or 0 and 100).

Special cases

  • Maximum possible value: 1 (or 100)
  • Minimum possible value: 0
  • Behavior: Oscillates between 0 and 1 (or 100), increasing sensitivity to the standard RSI.

Visualization

Stochastic RSI

Trading Significance

  1. Overbought/Oversold: StochRSI defines overbought as above 0.80 (80) and oversold as below 0.20 (20).

  2. Sensitivity: Because it is an indicator of an indicator, it moves faster. It is best used to identify short-term trends within a larger trend determined by other tools.

  3. Crossovers: The %K and %D lines within the StochRSI can provide crossover signals similar to the value Stochastic Oscillator.