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Could you explain StochRSI please. I can't find that in MS.
Malcolm Scott
I learned of StochRSI from T. Chande and S. Kroll's book "The New Technical
Trader" which was published by Wiley in 1994. The book is well done and
describes a variety of indicators that the authors have developed or refined.
I can't give a reference, but, I am confident that StochRSI has been discussed
in the periodical "Technical Analysis of Stocks and Commodities" and it may be
on the Equis site for that matter.
The formula for the unsmoothed StochRSI is:
StochRSI = (RSI - RSIL)/(RSIH-RSIL) where
RSI is the current day's RSI
RSIL is the lowest RSI for the user selected look back period and
RSIH is the highest RSI for the look back period
In a nutshell, the StochRSI converts the RSI into an oscillator that tells you
where the RSI is over the last x number of days. For example, if you are
using a 34 day StochRSI and the RSI is reaching new highs for that look back
period (34 days), the StochRSI will take on a value of one. If, on the other
hand, it is reaching new lows, it will take on a value of zero. Without any
smoothing (i.e. taking a moving average), the StochRSI generally moves rapidly
from either extreme and this can give you an indication of the trendiness of a
security. That is, if the StochRSI remains near 1, the security is trending
up. Conversely, if it remains near zero, it is trending down. If it stays
between the two extremes (Chande & Kroll suggest cutoffs of 0.2 and 0.8) for
an extended period, it shows that the security is not trending. I use the
"trendiness" part of the indicator subjectively by looking at the way highs
and lows are formed. For example, as a security forms a bottom, the StochRSI
will begin forming higher highs and higher lows. A security will shift from
trending down to trending up fairly quickly and the higher highs and higher
lows of the StochRSI can give you an early warning.
For my mechanical system, I use a smoothed StochRSI. By looking for buy
signals when the StochRSI is below 0.2 and is curving up, I know that the RSI
is at a low level for the given look back period and it is due to move back
up. Smoothing the StochRSI makes it harder to use to measure trendiness, but,
it helps take the noise
out and shows extremes better.
Now, aren't you sorry you asked.
Dan
Pocatello, ID USA
P.S. I forgot to mention in my last post that I only buy securities that are
above their 200 day moving average and sell short securities that are below
that average. It is an important part of my system.
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