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Stochastic RSI (StochRSI)

Stochastic RSI (StochRSI)

The Stochastic RSI indicator was developed by Tushard Chande and Stanley Kroll.  It shows the level of the current RSI as compared to the High-Low range of past RSI values for a certain period of time.  The High-Low range is a range defined by the highest high and the lowest low in that period of time.

 

StochRSI therefore, applies Stochastic Oscillator formula to RSI values instead of to closing prices.  Since the Stochastic Oscillator is a momentum indicator, the StochRSI therefore, reflects the momentum of momentum.

 

StochRSI assumes values between 0 and 1.  When the RSI is at its highest high value during a certain period of time, the StochRSI is then 1.  If on the other hand, the RSI is at its lowest low for the same period of time, the StochRSI is then 0.  In addition, when the StochRSI is 0.2, it then means that the RSI is near its lowest level for a certain period of time, and similarly, when the StochRSI is 0.8, it then means that the RSI is near its highest level for the same period of time.

 

StochRSI is used to identify overbought or oversold conditions.  When StochRSI is consistently above 0.8, the stock is considered to be overbought.  Similarly, when StochRSI is consistently below 0.2, then the stock is considered to be oversold.

 

The Blue line in the image below represents a 14-day StochRSI with values ranging between 0 and 1.