Stochastic RSI: How Two Indicators Combine to Provide a Powerful Signal in Trading

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This guide explains what Stochastics RSI can do and show traders as an indicator in technical analysis.

We break down the basics of interpreting potential buy and sell signals with example charts using the Stochastic RSI and offer free resources on additional trading tools.

Read on to find out how Stochastics and RSI Indices work together to produce this comprehensive tool.

What Is The Stochastic RSI?

The Stochastic RSI combines two very popular technical analysis indicators, Stochastics and the Relative Strength Index (RSI).

Whereas Stochastics and RSI are based on price, Stochastic RSI derives its values from the Relative Strength Index (RSI). In short, it is the Stochastic indicator applied to the RSI indicator.

How To Interpret The Stochastic RSI

As will be shown below in the chart of the S&P 500 E-mini Futures contract, the Stochastic RSI attempts to give buy and sell signals and overbought and oversold readings:

Comparison of Stochastic RSI and Relative Strength Index

In the chart above of the E-mini S&P 500 Futures contract, the RSI indicator spent most of its time between overbought (70) and oversold (30), giving no potential buy or sell signals.

However, the Stochastic RSI used the RSI indicator to uncover potential buy and sell signals.

How To Interpret Potential Buy And Sell Signals

How a trader might interpret the potential buy and sell signals of the Stochastic RSI is given next in the chart of the S&P 500 E-mini:

Stochastic RSI buy and sell signals

Stochastic RSI Potential Buy Signal

A trader might consider buying when the Stochastic RSI crosses above the Oversold Line (20).

Stochastic RSI Potential Sell Signal

A trader might consider selling when the Stochastic RSI crosses below the Overbought Line (80).

You can read more about the Stochastics and the Relative Strength Index (RSI).

Where Can I Start Trading With Stochastic RSI?

If you are interested in trading using technical analysis, have a look at our reviews of these regulated brokers available in to learn which charting tools they offer:

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-83.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Further Reading

If you’d like to learn about other technical indicators, see our guides on:

We also offer broker guides for different instruments like options, CFDs, forex, cryptocurrencies, and stocks.

FAQs

What is the difference between RSI and Stochastic RSI?

The relative strength index (RSI) is a tool designed to measure the rate of price movements, namely, speed. On the other hand, the Stochastic indicator measures momentum based on past time periods. The two tools work well together. Together, they make the Stochastic RSI that measures the RSI momentum.

What are RSI strategies used for?

The most common use of the relative strength index (RSI) tool is to measure volatility and in that, indicate potential trends of overselling and overbuying. RSI strategies may be used by traders to indicate a market that is pushing its boundaries, which is useful insight for potential buy, sell, and exit signals in trading.

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