Stochastic RSI (StochRSI) and Bollinger Bands are two well-known technical indicators that may help traders make better trade decisions. Both indicate different metrics but are ultimately useful for realizing more profits. In this article, we’ll assess each signal and consider a reliable tool for implementing both.
What Is Stochastic RSI?
StochRSI (Relative Strength Index) is a trading indicator that helps gauge an asset’s price momentum. Cryptocurrency traders use this oscillator to determine whether the market has oversold or overbought a coin. This technical analysis (TA) is a derivative of RSI values rather than crypto price data. StochRSI is extremely sensitive to market changes; therefore, it’s able to produce considerable trading signals that you may find useful.
StochRSI is most useful when within the range of its upper or lower extremes. Zero to one hundred numerical scales (marked at 20 and 80) from StockRSI. The scale labels overbought and oversold market movements over 80 and below 20, respectively.
However, the RSI indicator may not always be dependable. Why? The presence of false signals and numerous fake-outs make it challenging to assess the exact demand and supply conditions. Also, the indicator may remain over 80 or below 20 for prolonged periods. Experts recommend the use of other indicators alongside the RSI.
Three key features differentiate the StochRSI from other technical analysis tools.
- StochRSI is a technical evaluation indicator that compares an asset’s price range and closing price to predict the stock market’s movement.
- StochRSI performs an exclusive function in cryptocurrency trading as it analyzes market momentum to provide reliable interpretations for oversold and overbought coins.
- The price of overbought coins moves faster to oversold on the StochRSI than the Relative Strength Index.
But you may ask, “What is the difference between RSI vs. Stochastic?” RSI is an instrument to measure the rate of price movements — in other words, speed — while the Stochastic indicator gauges an asset’s price momentum. Working together, they form the StochRSI that measures RSI momentum.
How to Calculate StochRSI
The formula for Stochastic RSI is:
- StochRSI = RSI – Lowest RSI divided by Max RSI – Lowest RSI
- RSI means the current RSI reading.
- The lowest RSI means the minimum RSI reading for the last 14 periods.
- Max RSI means the maximum RSI reading since the last 14 oscillations.
These values are derived from RSI readings. The calculation involves 14 data oscillations, and that’s the RSI’s value input too. The StochRSI formula, in turn, incorporates these values. Let’s see the step-by-step illustration below to achieve your StochRSI values.
- Note the RSI levels for 14 data periods.
- Highlight the current, the lowest, and the highest RSI values on the 14th.
- Also, highlight the current, lowest, and highest RSI readings on the 15th oscillator.
- Use these values to get your new StochRSI.
- You may now compute your new StochRSI values using only the last 14 RSI readings.
What Are Bollinger Bands?
Bollinger Bands are a technical indicator that helps traders recognize and categorize new market trends. Therefore, they may have a clearer understanding of the oversold and overbought stock. Overbought assets on Bollinger Bands are represented on the higher band, a signal for traders to sell. On the other hand, underbought assets are displayed on the lower band — a buy signal in this case.
Bollinger Bands are technical indicators that crypto traders use to track an asset’s performance over a period. They may then sell or buy according to the collected analysis. Traders may identify coins that may spike, thereby figuring out when to enter and exit a trade. Bollinger is also helpful in automated cryptocurrency trading. Experts may code trading bots that help recognize and discharge technical indicators.
Two vital specifications distinguish Bollinger Bands from other forms of technical analysis.
- Bollinger Bands may help estimate an asset’s rising probabilities. This feature implies that Bollinger Bands comprehensively define an asset when losing strength or reversing its movement.
- Traders may get a clearer idea of down-trending assets using Bollinger Bands. They may figure out an asset’s falling state, particularly when the upside trend is reversing.
Understanding Bollinger Bands Better
Bollinger Bands have unique characters that help the trader deduce meaningful marker information. A trader may suspect a sharp move in prices should the bands pack tightly in a low volatility period, for instance. Typically, such a trait indicates a trending move, but traders are advised to ensure the signal isn’t false and may move counterclockwise.
The presence of a significant gap between bands indicates the likely end of a trend and increased volatility.
However, note that prices may also fluctuate within the bands. The price may touch a band while swinging towards another. These interactions may be confusing, but they help evaluate profit targets. To summarize, the upper band represents the profit target if an asset’s price drops down to the lower band and spontaneously climbs up and across the moving average.
It’s noteworthy that prices may glue the band for a long time or increase when the trend is strong. Nonetheless, experts recommend more research to figure out extra profits. For instance, a price may cross both bands and flip back inside, leading to a negative scenario.
Create an Automated Custom Scenario
Obolon9 is an automated crypto trading system that offers comprehensive market surveillance 24/7 and instant notifications when the market moves according to the parameters you’ve set. This tool comes with ready-made scenarios and ones customizable to the user’s specifications.
Follow these steps to create a custom tool using Obolon9’s customizable scenario:
- Create a name for your scenario.
- Select a trading scenario.
- Choose a trading platform and a cryptocurrency pair.
- Specify your desired parameters.
- Save and run your program.
Stochastic RSI and Bollinger Bands are two powerful technical indicators that may help cryptocurrency traders gain a clearer market understanding. When properly done, these evaluations will help the trader have a good picture of the potential future of the coins they’re trading. You may implement StochRSI and Bollinger Bands on automated trading systems, like Obolon9, and create a customized scenario.