Almost all traders are familiar with Stochastic and RSI indicators, which is not surprising, because they open up a lot of opportunities to create profitable trading systems. Nevertheless, despite their versatility, these oscillators become vulnerable under certain circumstances, so traders went further and created the Stochastic RSI indicator, which combined the advantages of these algorithms.
The idea is quite simple – the indicator shows the overbought state when the current maximum of the asset price is close to the previous maximum of the price, and the oversold state when the current minimum of the price is close to the previous minimum of the asset price.
This indicator of technical analysis, which appeared in 1994 thanks to the work of traders Stanley Kroll and Tushar Chend.
Today it is one of the best and reliable indicators of technical analysis, which has taken the best from Stochastic and RSI to accurately show periods of excess supply and demand. The signals of this instrument have become more qualitative, it is very simple to interpret them: when the level 20 is crossed by a line from bottom to top, this is a buy signal; when the level 80 is crossed by a line from top to bottom, we have a sell signal in front of us.
- Both lines are located below 20, in the oversold zone there is a signal to open a CALL option.
- Both lines are located above 80, in the overbought zone — a signal to open a PUT option.
How does StochRSI work?
The StochRSI technical indicator works with Stochastic and RSI data in order to end up with a more accurate indicator that allows you to clearly identify periods of excess supply and demand.
When working with a hybrid, it is necessary to remember that when its value is in the zone of excessive demand or supply, it is not a signal to act immediately, sell or buy. Do not act hastily, it is better to wait for confirmation signals.
In general, the benefits of the hybrid for the options player are obvious, being created in order to smooth out the shortcomings of some oscillators with others, it does not interfere with clear work, does not clutter up the price chart.
It is also worth remembering that the StochRSI reacts quickly enough to the dynamics of the market, which can give a lot of false signals. Traders recommend making the hybrid a confirmation, not a signal indicator of your strategy. So, StochRSI will become an additional trigger for actions, which will give you good results in binary options trading.
Is this index really better?
StochRSI includes the best of the two tools, which are also good separately. The indicator was created in order to get more accurate signals, simplify the work and interpretation of trends: oversold-overbought, divergence and convergence.
Thanks to the simple operation, no less simple installation and clear signals, both beginners and professional traders can work with the hybrid oscillator. Despite the fact that the main advantage of the StochRSI is an even more increased sensitivity compared to the RSI, the hybrid also has a disadvantage – false signals. It is worth using several indicators at once during trading to confirm the signals.
We can safely say that the StochRSI is one of the most reliable indicators of technical analysis of the market, accurately showing periods of excess supply and demand. In order for his data to bring you a good income, remember that a deep technical analysis of the situation is necessary.