Good afternoon, ladies and gentlemen!Many of you use in your trading indicator such as RSI.But well-known traders Stanley Kroll and Tusharda Chanda, author of "The New Technical Trader" and several other books, strained by the fact that RSI often is between levels 20 and 80 for a long time, not crossing them, and so they invented indicatorStochastic RSI , which they conceived to be deprived of this drawback.Maybe dear traders overdone, and may well have been intended, but the resulting indicator is in the overbought / oversold is very common.What actually happened in these two successful people?Today we will try to figure it out.
Features indicator StochasticRSI
Platform: the Metatrader 4
Currency pairs: any
trade time clock
indicator is set by the standard instructions, so that no problems arisemust.
indicator has only 4 settings:
RSI _ Periods - period RSI oscillator;
Percent_K - the% K Stochastic Oscillator;
Percent_D - parameter% D Stochastic oscillator;
NumOfBars - the number of bars of history that will be included in the calculation of the indicator.
As you probably noticed, the parameter "delay", typical for the indicator Stochastic oscillator, there is not.That is the indicator, as opposed to classical stochastic has no additional deceleration.
Stochastic RSI - an ordinary stochastic, which is calculated not by the values of prices, and on the value of the RSI indicator.There is little to remind how the Stochastic and the RSI is calculated for a more complete understanding of the essence of the indicator.
RSI compares the average of the price increases with the magnitude of downgrades over time.Stochastic also compares the level of the closing prices of candles with high / low range over a given period of time.Accordingly StochasticRSI RSI compares the level relative to its range over time.In other words, it takes as a basis for RSI and applies to his testimony formula stochastics.
Immediately begs the conclusion that the resulting indicator is better adapted to the current market conditions, the current volatility, unlike the RSI.
Naturally, as an indicator of the two oscillators is set, then it is necessary to use as an oscillator.
As you can see, the indicator looks like a classic stochastic, but in contrast there are no zones of overbought / oversold.Instead, they appear distinct levels - zero and one hundred.When RSI reaches a new low, StochasticRSI will be zero.When the RSI indicator of a new high is reached, we will see our light at around 100.
compare indicator StochasticRSI with basic indicators.As you can see, it is much more common in the overbought / oversold than the basic indicators.In addition, he is really a sensitive and often react to price changes before.
Rules of Entrance and Exit
So, how do we use this indicator to trade?
Use it just like any other oscillator.
- first and most obvious way to use - overbought and oversold levels.For this additional layers 20 and 80 may be applied - the same as that used for the stochastic.In this case, we consider only the basic line of fat, ignoring the signal.As with all other oscillators, it is not necessary to take any action when entering the oscillator in these areas: the indicator is very sensitive and may be in them for a very long time.The signal-to-action - output indicator of these zones.But be careful because of the special sensitivity of the indicator gives a lot of false signals!
- very good shows itself 50 level, helping to keep the deposit from premature entry.The signal generated by the intersection of level 50 gives good signals to enter the position, not much delayed and still quite robust.Also, the finding of the indicator is higher / lower than 50 can be used in your system for filtering input: above 50 - only purchases below 50 - sale.
- You can also use the intersection with the main line of the indicator signal.It is much safer to consider such crossing in overbought and oversold.
What signals characteristic of the oscillators, you should not use this indicator:
- known and most reliable type of signal from the oscillator, which many traders use in their systems, both for input signal in the position - divergence, unfortunately,this indicator is weak.Therefore it is better not to use it.
- Many paint levels, trend lines and looking for technical figures, such as "head and shoulders" on the chart RSI.Although Stochastic RSI that was created on the basis of similar indicators, methods for preparing these signals then also operate poorly.
Well, it seems that Chand and Kroll completed the task in front of them.
However, it is important to remember that the Stochastic RSI is an "indicator by indicator."It is well predicted extreme RSI values, ahead of the basic indicators, and yet it is more far from the price itself.In any case, do not forget that any light in any case be used alone, but in conjunction with other indicators and technical analysis techniques.
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