Intermediate3 min readTechnical Indicators · 10/16
Stochastic RSI: How Is It Different from RSI?
Stochastic RSI half-explains itself: it is not calculated from price directly but from RSI. An indicator of an indicator. That makes it much faster, and it reaches its extremes far more often.
What you will learn
Calculate Stochastic RSI from RSI readings in a worked example.
See why RSI can sit mid-range while Stochastic RSI is at the top.
Know why its extremes carry less meaning than RSI's.
The lesson as a short video · 20 seconds · Watch on YouTubeIn this lesson
You take the RSI readings of the last 14 sessions and find the highest and lowest among them. Then you ask: where does today's RSI sit between the two? The formula: (today's RSI − lowest RSI) ÷ (highest RSI − lowest RSI). The result lies between 0 and 1, and most tools show it from 0 to 100.
Worked exampleAn invented stock has an RSI of 60 today. Over the last 14 sessions its lowest RSI was 40 and its highest 65. So Stochastic RSI = (60 − 40) ÷ (65 − 40) = 20 ÷ 25 = 0.80, or 80. An RSI of 60 is a middling reading, but relative to its range over the past few weeks it sits near the top.
The real difference from RSI
MythRSI and Stochastic RSI measure the same thing.
RealityRSI compares price gains with losses. Stochastic RSI compares RSI with its own recent range.
Myth80 on Stochastic RSI is like 70 on RSI.
RealityStochastic RSI reaches 80 and 20 far more often, so those readings are less rare and mean less.
MythFaster means more accurate.
RealityFaster means it picks up small changes, many of them noise.
When RSI is flat
If RSI stayed between 50 and 52 for 14 sessions, the denominator in the formula is only 2. An RSI of 51.5 gives a Stochastic RSI of 1.5 ÷ 2 = 75, and 50.5 gives 25. A tiny change in RSI swings Stochastic RSI from one side to the other while the price itself has barely moved.
To calm that movement, many tools show two lines: a short average of Stochastic RSI (often 3 sessions) and a second average of that line. Same idea, just a little smoother.
Watch outStochastic RSI sits two steps away from price: price produces RSI, and RSI produces Stochastic RSI. A reading of 100 or 0 can come from a very small price move, and it is not a buy or sell signal.
Put them side by side
Open any stock chart on FoudaLens, add the RSI and Stochastic RSI panes, and count how often each reached its extremes over the last two months.