Crypto glossary
Stochastic RSI
The stochastic RSI is an oscillator that applies the stochastic formula to RSI values, showing where the RSI sits within its recent range for faster signals.
Instead of measuring price, the stochastic RSI measures the RSI itself. It takes the current RSI reading, compares it with the highest and lowest RSI over a lookback period, typically 14, and expresses the result between 0 and 1 or 0 and 100. Two smoothed lines, usually labelled K and D, are plotted, and their crossovers are used as signals.
Because it measures an indicator of an indicator, it moves much faster than the RSI and reaches overbought and oversold zones far more often, conventionally above 80 and below 20. Traders use it to time entries within an established trend, for example buying when it turns up from oversold during a pullback in an uptrend. On bitcoin's higher timeframes, weekly stochastic RSI crosses are often quoted in market commentary.
Its sensitivity is also its main weakness: it produces many signals, a large share of them false, and can stay pinned at extremes during strong trends. It is generally used as a timing aid alongside trend tools rather than alone.
Example
During an uptrend in ETH, the 4-hour stochastic RSI drops below 20 on a pullback, then its K line crosses above D. A trader uses that cross to enter long near support.