Stochastic RSI
The Stochastic Relative Strength Index (Stoch RSI) is essentially an indicator of an indicator. It is used in technical analysis to provide a stochastic calculation of RSI. This means that it is a measure of RSI relative to its own high/ low range over a user-defined period of time. Stoch RSI is an oscillator that calculates a value between 0 and 1 which is then plotted as a line. This indicator is primarily used for identifying overbought and oversold conditions.
It is important to remember that Stoch RSI is an indicator of an indicator, making it two steps away from price. RSI is one step away from price and therefore a stochastic calculation of RSI is two steps away. This is important because as with any indicator that is multiple steps away from price, Stoch RSI can have brief disconnects from actual price movement. That being said, as a rangebound indicator, stoch RSI's primary function is identifying crossovers as well as overbought and oversold conditions.
Overbought and oversold conditions are traditionally different to RSI. While RSI overbought and oversold conditions are traditionally set at 70 for overbought and 30 for oversold, those for stoch RSI are typically 0.8 and 0.2 respectively. When using stoch RSI, overbought and oversold work best when trading in step with the underlying trend.
During an uptrend, look for oversold conditions for points of entry.
During a downtrend, look for overbought conditions for points of entry.
SRSI
Calculation
Stoch RSI = (RSI - Lowest Low RSI) / (Highest High RSI - Lowest Low RSI)
