Stoch RSI being more sensitive moves more quickly from an overbought to an oversold level than RSI.

Bitcoin and Crypto Technical analysis Wednesday, August 17, 2022 - 18:34

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While crypto trading can be a pretty daunting activity, given the 24/7 schedule and volatile market conditions, technical indicators can be a great way to get a head start while you trade. In today’s article, let’s discuss two useful technical indicators namely Relative Strength Index (RSI) and Stochastic RSI (Stoch RSI) along with the comparison between the two.

Relative Strength Index

<source: Tradingview, Binance>

<Description: RSI line graph on a BTC 4-hour price chart>

Relative Strength Index measures the momentum of a crypto asset. It measures the speed and magnitude of the price changes of the asset. By measuring the momentum, RSI depicts the overbought and oversold conditions of a crypto asset. Beyond pointing to the undervaluation or overvaluation of an asset, RSI can also indicate when a crypto asset may go for a trend reversal or a correction. RSI, as such, helps traders to place their buy and sell bets (entry and exit points in the market). RSI is displayed as a line graph on a price chart and can be measured on a scale of 0 to 100. As a standard, we consider cryptos with an RSI of over 70 as overbought. If the asset has an RSI of 30 or less than 30, it shows an oversold condition.

RSI measures the strength of a crypto asset on days when its prices are rising to days when its prices may witness a slump. Usually, RSI is calculated for a 14-day period.

<source: Tradingview, Binance>

<Description: The formula for calculating RSI>

Stochastic RSI

<source: Tradingview, Binance>

<Description: Stochastic RSI on a 4-hour BTC price chart>

Stochastic RSI could be called an upgraded version of RSI as it uses the Stochastic oscillator formula on a set of RSI values instead of standard price data, as we saw in the case of RSI. Stochastic RSI lets traders analyze whether a particular RSI is overbought or oversold as its formula was developed while taking into consideration both momentum indicators - RSI and Stochastic oscillator. It is measured between 0 and 100 and is a more sensitive indicator than RSI. It depicts a crypto asset’s historical performance rather than general price movements.  

Stoch RSI, like RSI, is calculated for a 14-day period as a standard. The Stoch RSI value below 0.20 is considered oversold, while its value above 0.80 can be considered overbought and could signal a possible pullback.

<source: Tradingview, Binance>

<Description: Formula for measuring Stoch RSI>

Comparison between RSI and Stoch RSI

<source: Tradingview, Binance>

<Description: RSI and Stoch RSI on a 4-hour BTC Trading Chart>

While both indicators are momentum indicators, RSI is derived from a set of prices, while Stoch RSI is more a derivative of a set of RSI values. In other words, we can call Stoch RSI the second derivative of price.

Stoch RSI being more sensitive moves more quickly from an overbought to an oversold level than RSI. Both RSI and Stoch RSI, when used in conjunction with other indicators, can be highly useful for predicting price movements in the crypto market.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.


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