Updated: Oct 24, 2019
As i promised on that post, every week i will choose a technical analysis indicator from my toolbox and i will explain how i use it.
On this post, i want to talk about one of my favorites indicators, Stochastic RSI.
(For the science behind it, go to Investopedia )
As you probably know, StochRSI is an overbought/oversold indicators.
It helping us to identify edges, when the price is tense up or down.
When I'm looking on a stock price, I'm trying to understand if stochRSI is backing me up.
It doesn't mean that i will not buy a stock for long if the stochRSI is in overbought or i will not short if the stochRSI is in oversold, stochRSI has some weight on my decision but it's not a black or white, we need to use our trading scenes on each trade..
There are some cases that some security is in a good momentum and stochRSI identify each new high as oversold and same for lows so need to look on the big picture, open the graph in a bigger time frames (weeks, months) and see to overall movement of the price.
StochRSI will improve the probability of the trade but will not guarantee success or failure.
I have a checklist with all the indicators and techniques that i use, before each trade i marked each item on the checklist in order to understand the probability of the trade,
the more indicator/technical analysis patterns supports the trade, chances are growth.
Lest's see an examples:
CUBE, a trade that i uploaded a few days ago.
As you can see, the StochRSI fits perfectly, the technical analysis pattern is "Channel up", in a very good entry point + StochRSI in a upper cross which give us strong buy signal.
A few days later:
I probably wouldn't have made that trade if StochRSI wasn't in my side.
StochRSI can provide a lost of false alarms, need to look at it carefully and make a decision by calculation all the variables.
Please leave your feedback by adding a comment below :).