Stochastic RSI
Momentum
A stochastic applied to the RSI instead of to the price. The result is a very sensitive oscillator that reaches the extreme zones far more often than the plain RSI.
Construction & calculation
- First compute the RSI(14).
- See where that RSI sits within its own highest and lowest value over the last 14 periods.
- Smooth that result into %K (3 periods) and take the average of that again for %D (3 periods).
StochRSI = (RSI - lowest RSI(14)) / (highest RSI(14) - lowest RSI(14))
%K = SMA(StochRSI x 100, 3)
%D = SMA(%K, 3)
Interpretation
- Below 20 = the RSI is at the bottom of its own recent range: doubly oversold.
- Above 80 = doubly overbought.
- The crossing of %K and %D gives the timing signal; the zone in which that crossing falls determines its quality.
How the signal works in this scanner
Buy signal (green)%K crosses %D from below to above within the last 15 bars, and is still above %D now. If that happens below 20, the label notes '(in oversold zone)' — that is the strong variant.
Sell signal (red)%K crosses %D from above to below and stays below it. Above 80 the label shows '(in overbought zone)'.
Watch-outs & pitfalls
- Because of the double smoothing this is one of the most noise-sensitive indicators in the list. Never use it alone.
- The 15-bar window is needed because, after all the smoothing, the crossing rarely falls exactly on the last bar.