Indicators
Stochastic RSI
Stochastic RSI (Relative Strength Index) is a technical indicator that combines the concepts of both Stochastic Oscillator and RSI to provide insights into overbought and oversold conditions in the market. It aims to offer a more sensitive and responsive measure of market momentum and potential reversal points.
The Stochastic RSI indicator calculates the RSI values and then applies the Stochastic formula to those values.
How to use it ?
Interpreting the Stochastic RSI:
Overbought and Oversold conditions: Similar to the RSI and Stochastic Oscillator, the Stochastic RSI helps identify overbought and oversold conditions. Values above a certain threshold (e.g., 80) indicate overbought conditions, suggesting that the asset may be due for a potential price reversal or correction. Conversely, values below a certain threshold (e.g., 20) indicate oversold conditions, suggesting that the asset may be due for a potential price bounce or reversal to the upside.
Divergence: Traders also look for divergence between the Stochastic RSI and the price chart. Bullish divergence occurs when the Stochastic RSI forms higher lows while the price chart forms lower lows, indicating a potential reversal to the upside. Conversely, bearish divergence occurs when the Stochastic RSI forms lower highs while the price chart forms higher highs, suggesting a potential reversal to the downside.
Crossovers: Traders may also analyze the crossovers of the %K and %D lines. Bullish crossovers occur when the %K line crosses above the %D line, suggesting increasing buying pressure. Bearish crossovers occur when the %K line crosses below the %D line, indicating increasing selling pressure.