Stock exchange indicator StochRSI - what information it gives to traders.
Now there are many useful tools that help traders identify market trends. Each indicator shows certain data. StochRSI is a technical analysis indicator that shows the condition of an asset (overbought or oversold). With its help, you can quickly understand the trends in the market. StochRSI is a derivative of RSI* and it is in the range above or below the center line. The oscillator appeared in 1994, the first mention of it was in the book Tushar Chande. The indicator has the formula:
Stoch RSI=(RSI data for the current day is the minimum RSI indicator for the period %K)/(the indicator of the maximum RSI for the period %K — the minimum RSI for the period %K)*100.Scope of application of StochRSI
The StochRSI oscillator gives the following information:·
Notifies when the price reaches a critical point of maximum and minimum;·
Indicates in which direction the price indicator is moving;· tracks the price, its growth and decline.
As an example, the following situation can be cited: in a certain period, an asset begins to rise and fall in price, but then this movement slows down sharply.
It is at this moment that you will receive a signal that the price has slowed down and soon the trend may change in the opposite direction. Such a point of trend change is called momentum.Practical use of StochRSI
Before you start working with an oscillator, you need to study its features and capabilities in detail. Opening the chart in front of you, you can see that the instrument is presented in the form of two lines. The values vary between 30-70 or 20-80, the indicators depend on the characteristics of the settings. The oscillator shows oversold and overbought assets.
If it reaches the lower threshold, it is oversold, if the indicator reaches the maximum (it is at the upper limit), it is overbought. Most often, StochRSI is used as a base, it is not used as an independent tool.
Features of a strong trend
Often there is a strong trend on the stock exchange, then the StochRSI reaches the upper or lower limit.
When the price rises, the oscillator will notify about overbought, but the trend may still persist. The same situation occurs with a downtrend. Often the instrument does not look at the trend and gives a signal of oversold. This happens when one strong trend consists of several small ones. The user needs to remember that when the indicator "breaks through" the corridor, it means a strong trend. Signals input A
As a rule, the intersection of two lines of the oscillator means signals of entry into a trade. In this case, you should pay attention to the direction:· when crossing the lines and when they move up, a Call option is bought;
· at the intersection of two lines and their downward direction, a Put is bribed.
So you have to follow the direction of the lines.
Often the asset moves in different directions, this phenomenon is called divergence.
You can notice this in the following situations: the chart shows an uptrend, but the lines show the opposite trend, that is, down. Standard settings
Setting up the indicator does not take much time, only 4 parameters are configured:
· indicator of bars.
The following values are used as optimal settings: 14:14:3:
3. This setting will help to display the data most correctly. Thus, the oscillator is very useful for beginners and experienced traders.
It is best to use it in conjunction with other tools.