Stochastic RSI
Applies the Stochastic formula to RSI values, creating a faster, more sensitive oscillator that spends more time at extremes.
Description
Stochastic RSI was developed by Tushar Chande and Stanley Kroll, introduced in their 1994 book The New Technical Trader. It takes RSI values as its input — rather than price — and applies the Stochastic formula to them. The result is an oscillator that is more sensitive than either RSI or Stochastic alone and spends more time near 0 and 100.
How It Works
StochRSI = (RSI − RSI lowest low) / (RSI highest high − RSI lowest low), calculated over a lookback period (typically 14). The result ranges from 0 to 1 (or 0 to 100). This is then smoothed: %K is a 3-period SMA of the raw StochRSI; %D is a 3-period SMA of %K, creating a signal line. Most platforms plot both lines.
How to Read It
Values above 0.8 (or 80) signal overbought; below 0.2 (or 20) signal oversold. A %K crossover above %D from below 20 is a bullish signal; crossing below %D from above 80 is bearish. Because it’s built on RSI, StochRSI responds more to momentum changes than to raw price. It can generate signals earlier than RSI alone.
Common Uses
- Identifying momentum extremes before they show up on RSI
- Crossover signals for entry timing in conjunction with trend confirmation
- Short-term overbought/oversold identification for swing traders
Caveats
StochRSI is significantly more noisy than RSI or standard Stochastic — it generates frequent false signals that require filtering. The compound nature means it can move rapidly from one extreme to the other within a single session. It is designed for traders who already understand RSI and Stochastic, can identify genuine signals, and have a robust confirmation framework. Used in isolation by beginners, it produces poor results.