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The Stochastic RSI is an effective search algorithm entry points
Indicators Stochastic RSI and is familiar to almost all traders, which is not surprising, because they offer many possibilities for creating profitable trading systems. However, despite the versatility, these oscillators become vulnerable under certain circumstances, so traders went further and created the Stochastic RSI which combines the advantages of these algorithms.
To be more precise, the authorship on this indicator belongs to Stanley Kroll and Tocardo North, who wrote the book "the New technical trader". However, such ideas have repeatedly voiced, and some programmers even created a similar modification on the basis of other standard indicators.
But it is a thing of the past, all that matters is how works the Stochastic indicator of the RSI, and it is calculated in two stages – first the standard way RSI is calculated, then on the basis of stochastic values is constructed. That's the whole secret that the chart below is an example of markup for MT4 terminal:
RSI and stochastic Forex
You can free download the Stochastic RSI indicator for MetaTrader 4.
In order to configure the indicator to suit your needs, you may adjust the following parameters:
RSI_Periods – RSI calculation period;
Percent_K – the period for calculating the value of the line %K of stochastic;
Percent_D – period to compute the %D line;
NumOfBars – depth history of values of the Stochastic indicator RSI, which is displayed on the work window (if set to 0 shows the whole story).
What was created by the Stochastic indicator of the RSI
To better understand what purpose it took "out of the blue" to complicate the old well-tested algorithms, let us recall some features of the stochastic and relative strength index. Both of these indicator show a good entry point, but unfortunately, the trader has to choose one of two options:
To calculate the value of the oscillators for a short period and to conclude a large number of transactions from the overbought/oversold dealing with frequent false alarms.
The situation with the program Stochastic RSI
Or work on the reverse principle of avoiding false alarms by increasing the calculation period. In this case, most of the time the value of the signal oscillator line will be between the critical levels, and deals will be a real landmark event due to its rarity:
Stochastic RSI in Forex
If you use Stochastic RSI, then no such problems, on the contrary, when calculating for the same period, the signals appear more often than on standard indicators. The following image is mapped to the original algorithms and the development of Stanley and Touchard:
Compare indicators
As you can see, the main line (in bold) refers to the extreme range limits (0 and 100) much more often than usual oscillator, with another touch of the lower or upper boundary of the corridor coincides with the time of formation of a new extremum on the standard RSI.
Speaking of signal lines, the authors did not add the usual overbought/oversold and left as critical values only 0 and 100, which, in my opinion, was done completely in vain.
Still recommend that these two indicators:
Standard Deviation
Gator Oscillator
Strategy based on RSI and Stochastic
Continuing the theme of signal levels it is impossible not to recall one old but proven technique which is to trade from the extreme boundaries of the oscillator. This applied to the working field two horizontal lines with values of 20 and 80.
Trade on Stochastic RSI
A deal to buy it is better to open after the main line of the Stochastic indicator of the RSI crosses the level 20 upwards, and to open the short positions should wait for the moment when the indicator line crosses the level 80 downwards:
What signals Stochastic RSI
Compared to the purchase/sale, at the moment of touch 0 and 100, this approach filters out a large number of false signals that appear more often than on the standard RSI and stochastics.
But there is an alternative way of working – can be used as a signal level of 50. that is, if the value has closed below the 50 – sell, and if the above – buy:
Indicator stochastic oscillator and RSI
When you select one of the options considered should take into account the timeframe, the period of calculation of the Stochastic indicator RSI and volatility of the trading instrument. In my experience, a good signals appear at the first technique on the daily charts.
Some traders are also trying to buy and sell the asset at the time of crossing of the main and signal lines of the indicator (like stochastics), but, to my knowledge, reliable systems based on the ideas generated and was not due to the unacceptable delay of the signals.
Thus, Stochastic RSI generate signals more frequently than the underlying algorithms, but, unfortunately, this advantage is negated by the large number of premature inputs, so you have to resort to filter through the levels of overbought and oversold.
In addition, not be amiss to consider the combined indicator with trend methods, since the greatest losses brought trades against the prevailing trend. Good assistant in this case are simple and exponential moving averages, CCI, and alligator.
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| Category: Forex | Added by: (05.11.2017)
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| Views: 1312
| Rating: 0.0/0 |
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