Created in 1994 by Tushar Chand and Stanley Kroll, the stochastic RSI, also known as StochRSI, is generated from the RSI by applying the stochastic oscillator formula.
RSI Stoch = (RSI – RSImin) / (RSImax – RSImin)
On a given period, RSImin is the smallest RSI value and RSImax the biggest.
• A StochRSI higher than 80 indicates an overbought zone.
• A StochRSI lower than 20 indicates an oversold zone.
• The crossing of those two lines can give buying/selling signals.
This indicator is often used to confirm a signal with other tools, because of its high sensitivity to market movements it often gives false signals.
Like the RSI, the StochRSI determines if an asset is oversold or overbought and gives potential reversal points. It is more often reaching its higher and lower bounds than the RSI.