Stochastic RSI Indicator – Formula, Strategy

The Stochastic RSI indicator is measure by the RSI indicator. and show you the overbought and oversold zones.

The name of this indicator tells you, this indicator includes the RSI indicator and shows you the signals.

Also, The way of showing indication is similar to the RSI indicator. the difference StochRSI indicator works well in the trending market.

Stochastic RSI Setting

Stochastic RSI
  • Period: The 14-period share price will take to calculate this indicator.
  • Source: the default source is ‘close’, this means the period closing price will take to calculate this indicator.
  • URef: this is the upper reference value. means this indicates an overbought zone. and the default overbought zone value is 80.
  • LRef: This is the lower reference value. means this indicates the oversold zone level. and the default oversold zone value is 20.
  • Channel Fill: this will fill the gap between overbought and oversold zone.
  • StoRSI: this is the Stochastic RSI Indicator line color. in this trading software blue line is the StoRSI line.
  • URef: this is the overbought zone line color.
  • URef: this is the oversold zone line color.
  • Fill: this is the channel fill color.

Calculation

The formula is:
Stochastic RSI = (RSI- LL RSI)/(HH RSI - LL RSI)
where, LL = Lowest low.
HH  = highest high.

What StochRSI indicator tells you,

this will help you in the trending market, if the stock is in the downtrend, this will help you to find the overbought zone.

If the stock is in the uptrend, this will help you to find the oversold zone.

When the blue line will go above the 80 level, this is the Overbought zone. And when the blue line will move down below the 20 level. This indicates an oversold zone.

Stochastic RSI indicator trading Strategy

Buying strategy

First you have to find trend of the share. So you can use Supertrend to find the trend.

Stochastic RSI buying strategy

If the Supertrend is showing an uptrend. then see the StochRSI and find the Oversold zone. And buy the stock in the oversold zone if the share is in the bullish trend.

Short selling strategy

Stochastic RSI selling strategy

If the share is in the downtrend in the Supertrend Indicator. Then see the StochRSI indicator and find the overbought zone. And short sell the stock in the Overbought.

Conclusion

Stochastic RSI is measured by the multiple fields RSI value and shows an Oscillator line. It’s has a line which will Oscillate between 0 to 100. And tells you the buying and selling positions. Basically it’s more useful in the trending market. In the trending Market, it’s will shoe you oversold and Overbought zone that will help to buy and sell the stock.

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