What it is
Stochastic RSI, introduced by Tushar Chande and Stanley Kroll, is an indicator of an indicator. RSI can spend long stretches between 40 and 60 without reaching its extremes. Applying the Stochastic formula to RSI stretches those readings across the full 0 to 100 scale, so turns show up sooner.
The cost is noise. Stochastic RSI hits 0 and 100 often, so it is best used for timing entries inside a trend you have already identified, not for deciding the trend.
How it is calculated
1. Work out RSI over 14 candles. 2. Find the highest and lowest RSI values over the last 14 candles (the stoch length). 3. Raw Stoch RSI = (RSI minus lowest RSI) divided by (highest RSI minus lowest RSI), times 100. 4. %K = a 3 period simple average of the raw value. 5. %D = a 3 period simple average of %K. This is the signal line.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| RSI length | 14 | 2 to 200 | Candles in the underlying RSI. |
| Stoch length | 14 | 2 to 200 | Candles over which RSI's high and low are measured. Shorter is faster and more extreme. |
| %K smooth | 3 | 1 to 50 | Smoothing of the main line. 1 shows the raw, very jumpy value. |
| %D smooth | 3 | 1 to 50 | Smoothing of the signal line. |
How to read it
How to trade it
- 1
Set the trend on a slower chart, for example price above the 50 period average on 1 hour gold.
- 2
On the 15 minute chart, wait for Stochastic RSI to drop below 20 on a pull-back.
- 3
Buy when %K crosses above %D while still under 20, or as both lines climb back through 20.
- 4
Place the stop below the pull-back low, often 5 to 8 points on 15 minute gold.
- 5
Take profit when %K reaches 80 or at 1.5 to 2 times the stop. On US30, mirror the rules for sells in a downtrend.
A buy from oversold is proved wrong when %K crosses back below %D under 20 and price closes below the pull-back low.
WickSpeak runs in your browser with nothing to install. When you add Stochastic RSI, it writes a plain-English reading on the live candle: what the indicator is, what it is doing right now, how to trade it and what would prove that reading wrong. It says where %K and %D sit against 20 and 80, whether they have just crossed, and whether the reading agrees with the trend.
In Playbook, our no-code strategy builder, Stochastic RSI can be a condition in a play. It can test whether Stochastic RSI: crosses above its signal line; crosses below its signal line; crosses above a level you set; crosses below a level you set; is above a level you set; is below a level you set; is between two levels you set. Each condition can run on any of 12 timeframes from 1 minute to weekly, combined with up to 11 others, and the play can be backtested on past candles with your own costs and turned into alerts on screen, by email or by phone push.
There is also a WickSpeak Stochastic RSI. Its line is coloured by strength: faint when the push is weak, glowing when it is strong, mint above 50 and pink below it. Crosses of 50 are marked only once the candle has closed, so a marker never appears and then vanishes mid-candle. A gold marker shows a stretched reading, meaning the strongest few percent of its own range or a reading past a fixed extreme level. Divergences between price and the oscillator are drawn on both the chart and the indicator, and a chip shows the same reading on a higher timeframe.
Best markets and timeframes
Best for timing on 5 minute to 1 hour charts of gold, indices and forex, with the trend taken from a slower timeframe.
Common mistakes
- Selling every reading above 80 in an uptrend.
- Using it without a trend filter, which leads to many small losses.
- Confusing it with the normal Stochastic, which uses price rather than RSI.
Works well with
Questions traders ask
What are the best Stochastic RSI settings?
The standard is 14, 14, 3, 3: RSI length, stochastic length, %K smoothing and %D smoothing. Some scalpers use shorter lengths, but that adds noise.
What is the difference between Stochastic and Stochastic RSI?
The Stochastic measures where price closed within its recent high to low range. Stochastic RSI measures where RSI sits within its own recent range, which makes it faster and more sensitive.
What do 20 and 80 mean on Stochastic RSI?
Below 20 means RSI is in the bottom fifth of its recent range, called oversold. Above 80 means it is in the top fifth, called overbought.
Is Stochastic RSI good for scalping?
It reacts quickly, which suits short timeframes, but it also gives many false signals. Use it only in the direction of a clear trend and with a firm stop.