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25 Сентябрь 2008

A mixture of indicators - StochRSI

Indicators-hybrids - is not too frequent event in the Forex market, but nevertheless, these elements have sufficient database to make the most qualitatively interpret a particular market situation to give the necessary signals to the opening position. One of these indicators, hybrids - oscillator StochRsi. This hybrid is able to measure the relative strength index (RSI) for a certain period of time in accordance with the range indicator RSI. The nuance is that the basic framework indicator hybrid-laid in accordance with the rules for constructing RSI, but to this indicator, among other things, the formula for constructing stohastika (Stochastic).


In creating this indicator-hybrid ultimate goal of the founders was to increase the sensitivity index of relative strength. The problem is that in the case of RSI, with no filters, he often fluctuates between borders. By default, these boundaries are located at around 30.00 and 70.00. That is the price range from 30.00 to 70.00, not going beyond those borders, and not giving any signals to the opening position.

Developers bar-hybrid - Stanley Crowley and Tushard Cheynd concluded that the RSI indicator that is needed to increase sensitivity to market fluctuations. All his arguments and justify the creation StochRsi Crowley and Cheynd resulted in his book «The new technical trader».

Looking beforehand, I would like to point out that the traditional belief of all technical analysts is that the market analysis tools should be as simple as possible. Pile of different elements, filtering market noise, of course, reduces the risk of filing false signals, but nonetheless often are ballast, as well as to receive the signal must be a long time to wait when «match all the stars in the sky». That is why we will not speak well for this indicator, but cite some important arguments, which are based on the tool directly to trade.

Before turning to the StochRSI, it is necessary to understand the nature and origin principle stohastika work as well as the relative strength index. Therefore, to start, briefly mention what those indicators.

Stochastic is designed to ensure that the trader can clearly see where the most recent price range compared with last modification (changes) that have taken place in the market. Stohastika like the relative strength index gives to know when the market perekuplen, and when resold. This is possible due to fluctuations in the indicator in the range of 0 to 100. Values are expressed in percentage. When the line indicator exceeds the value of 70 (default), it is said that the market is approaching as overbought. In turn, if the line indicator is lower than 30, is ready to talk about a possible approaching oversold market.

Relative Strength Index (RSI) is similar to the stochastic oscillators. Here, there are also areas overbought and oversold. An important indicator of the relative strength index is the number of recorded episodes. And most importantly - the right to ask those periods.

Briefly run on these indicators, concludes: better would be to combine these indicators to get better signals. In support of this assertion is the following reasoning:

• Stohastik more changes, so this indicator reaches overbought and oversold areas much faster than the RSI.

• Stohastik because of their greater mobility can provide more pricing discrepancies and line indicator than the indicator RSI.

• RSI - slower indicator, but when the two lines - RSI and Stochastic crossed the border zones oversold and overbought, it gives a more reliable signal to the opening position.

As hybrid StochRSI The rationale is that the formula stohastika apply to RSI. At the exit produced indicator that can measure the RSI reading for the range max / min for a certain number of periods. When the indicator of relative strength will reach a minimum for a certain period, will show a hybrid StochRSI 0. When the indicator of relative strength reaches a maximum for a certain period, hybrid StochRSI will display 100.

If StochRSI will show the importance of, for example, 10, it will mean that at this time testify RSI is 10% higher than the minimum level set for a certain period, and, accordingly, 90% lower than the maximum level, fixed for a certain period. If we take, for example, the value of 90, it will mean that the evidence of the relative strength index is 90% higher than the lowest level set indicator for a certain period and 10% lower than the maximum level set for a certain period.

How does StochRSI

There are various methods of using hybrid StochRSI. One of these techniques - the crossing of borders overbought and oversold. In particular, if we have an ascending trend, it signals the opening of long positions will be crossing StochRSI lower limit. This border can vary independently. But in most cases it is at around 20. That is, to open long positions appropriate at the time of crossing indicator of the lower limit upwards. Everything happens with an accuracy of the reverse indicator when crossing the upper boundary, which in most cases is at a point 80. The signal for sale in the descending trend will be served when the indicator crosses the boundary line is overbought 80 from top to bottom.

Another method of trading using StochRSI signals are given when crossing the line indicator of the center line.

This technique is used less frequently, but still has the right to exist. Its meaning is that the trader monitors the movement of the line indicator on the central line. She (Central Line) is at around 50. The signal to buy will come when the indicator crosses the line from the bottom up the center line (50). Accordingly, the signal will come up for sale when the line is crossed the center line indicator downwards. It is also worth noting that the signal of the purchase will be valid until the line is not an indicator falls below 50. The same with a signal to sell. As long line of the indicator does not rise above 50 marks, you can open a short position.

Using StochRSI indicator can be measured because of the current trend. Often you can see how long the price is at or below 20 or above level 80. In the first case can be concluded that the market dominated by a strong down trend, in the second - a strong upward trend. Of course, these data can influence the decision in the case of predicament.

The last thing I would like to mention on this indicator - divergence.
Most indicators like RSI, MACD, Stochastic, CCI and others have one great quality - they can identify divergence. What is a divergence of you probably know, but just in case recall. Divergence - this is the difference between price and indicator. This phenomenon occurs less frequently, but has a remarkable quality - reliability signals. Povyshayuschayasya divergence gives the signal for the purchase of market instruments and accompanied by a rise above the level of 20. Accordingly, the downward divergence gives the signal for the sale of market instruments and is accompanied by falling below 80.

That is, in principle, and all that we wanted to say on this indicator. Really, I finally recalled little nuances that regard, perhaps the most technical indicators. StochRSI be used primarily to other elements of technical analysis. Even despite its modification, it can give false signals, so there is a nuance is taken into account when implementing trade.