What is Stochastic RSI?
Stochastic RSI (StochRSI) is an indicator of an indicator. It applies the Stochastic oscillator formula to a set of Relative Strength Index (RSI) values rather than to standard price data. This makes it an incredibly sensitive indicator that moves between 0 and 100, perfect for identifying short-term overbought and oversold conditions.
The Logic
Standard RSI can hang around 50 for weeks. StochRSI forces the value to the extremes (0 or 100), generating more frequent signals for active traders.
Trading Strategy
Buy Signal
- StochRSI drops below 20 (Oversold).
- Wait for the lines to cross back ABOVE 20.
- Aggressive: Enter on the crossover.
- Conservative: Wait for RSI > 50 confirmation.
Sell Signal
- StochRSI rises above 80 (Overbought).
- Wait for the lines to cross back BELOW 80.
- Aggressive: Enter on the crossover.
- Conservative: Wait for RSI < 50 confirmation.
Volatility Warning
StochRSI can remain "overbought" (above 80) for a long time during a strong pump, or "oversold" (below 20) during a crash. DO NOT trade against the trend solely based on this indicator.