How to Use Stoch RSI: Technical Analysis Guide No. 1

Short Maestro · 2024-03-27T02:29:23.000Z

Hello It's Short Maestro. I promised I would do a technical analysis guide someday but I was too busy and lazy. I will start publishing these articles. BEFORE READING: If you are an expert, you would know that this article lacks a bit of information, or just simplified a lot of things. But this is crypto, the guide must be suitable for apes. 😂 Anyways... First one on the guide list is Stochastic RSI. This is the main indicator I use to eyeball a trend. The Stochiatic oscillator is a formula which uses RSI (Relative Strength Index) to produce overbought/oversold signals of greater sensitivity at a shorter time frame. What is RSI? Google it if you don't know. The basics of Stoch RSI, its detailed formula, the %K, %D lines are all at Investopedia or many learning sources. Just google it. So how do we use this on crypto to earn money? That is our ultimate goal here. Put money in crypto, pull off a 360 backflip or whatever, and exit with more money. That is the one and only winning condition. This indicator is pretty useful on scalping, or day trading, whatever you call it. Any short-term futures trading basically. The indicator is a lot more useful when combined with RSI. On default settings, the blue line is %K and orange is %D. Orange line is basically a smoothed line of Blue line. Very simple. %K = 100(C - L14) / (H14 - L14) C: Most recent closing price / L14: Lowest price of 14 day period / H14: Highest price of 14 day period. By period, it means 14 candles on a chart, so 1min chart: 14 period is 14 min. etc. %D is a three period smoothed average of %K. So Blue line moves aggressively, and orange line is smooth. ok? Lets move on. Some real chart examples on BTC: You see, an RSI level is a basic way of determining an upwards/downwards trend, and how much momemtum it has. Stoch RSI can be used with RSI to confirm the trend, or expose that the RSI level is unsustainable. Usually, when Blue line is above orange line, and both are going upwards, it means bullish. And vice versa. On the first circle, we see that RSI is already on a downfall from overbought zone. From here, We also see a rapid rise on Stoch RSI all of a sudden, with blue line leading orange line, then a cross where orange line is over blue line, and the Stoch RSI chart is at a peak. This basically confirmed the bearish momentum, until Stoch RSI bottomed out. Notice how the RSI chart was also moving upwards when Stoch RSI made this hill pattern. However, as the chart dumps we see Stoch RSI in a bottom line, then an upwards momentum, peaking to 100. Now this is a good short position. Even if you did short at the 1st circle, yes you made money but you see the pattern is not clear. On the second circle, we see a green staircase momentum after a rapid downfall. While RSI levels are still at 50 ish, which does not indicate a peak by itself, we can see that the stoch RSI is at its absolute peak, very obvious. This confirmed an extreme overbought situation, and the result was straight dump. Had we only used RSI here, technically the lowest RSI levels were increasing bit by bit so it would indicate a bullish momentum. Which was true in the end, but not in the short term. Short here: Ez profit. The third circle is interesting. Stoch RSI was at peak for a long period, while RSI levels were slowly gaining. But this RSI uptrend is an overbought RSI, because we have Stoch RSI that confirms the RSI level is not sustainable. And when RSI hits 60, combined with a Stoch RSI at its absolute peak, this is a short position. However as I said, Stoch RSI is a short term indicator. If you hold your short expecting even more profits, you can see that after the 3rd circle market went to the moon. And you are liquidated. Now obviously, the real deal is not as simple as this one example. Combine both 1hr chart and 4hr chart using Stoch RSI and RSI together, even 1d chart helps. It will confirm how much a momentum can last, whether upwards or downwards in a short time frame. Also keep in mind, there are other factors to consider. Market Sentiment, Fundamentalism, Upcoming events, etc. If this indicator alone was 100% accurate then I could make a bot that just prints money. Now to the most important trap of this indicator: VERY IMPORTANT READ HERE. This is an example of when Stoch RSI does not work. Avoid any trading based on Stoch RSI when it looks like this. You can see that the blue line is way off the orange line. It's zig zag all over. Super messy. Don't open a position here. You don't have to open a position 24 hours a day, 7 days a week straight. You can make one good trade once every week, or month, and you wait for a market where you are confident, within your method of analysis, that confirms a profitable entry position. Finally, THESE INDICATORS DONT MEAN ANYTHING ON LOW VOLUME SHITCOINS AND BLACK SWAN EVENTS. <<<< DONT TRADE SHITCOIN/MEMECOIN/ALTCOINS. Comment if I made mistakes. I was very tired as I was writing this.