StochRSI is a technical analysis indicator that combines stochastics – an oscillator that measures momentum – with the traditional relative strength index (RSI). It is also known as Stochastic Relative Strength Index (Stoch RSI). The Stoch RSI measure the internal strength of a security’s momentum by comparing the current price with the high and low range over a given period and applying a simpler formula to establish a single output value on the 0 to 1 scale.

StochRSI is more sensitive than the RSI in identifying momentum. Therefore, the indicator is often used to identify trend-following signals and can be specifically helpful in determining when price momentum is overbought or oversold. Typically, a StochRSI reading above 0.8 is considered overbought, and a reading below 0.2 is considered oversold. On the 0 to 100-point scale often used for technical indicators, a reading of 80 or above is considered overbought, and a reading below 20 is considered oversold.

It is important to note that a StochRSI overbought or oversold signal doesn't necessarily mean that the price will reverse lower or higher. Instead, they simply alert traders and investors that the RSI is near the extreme high or low of the recent readings. A StochRSI reading of 0 suggests that the RSI is at the lowest level in the lookback period selected by the investor or trader, while a reading of 1, or 100, indicates that the RSI is at its highest level in the last 14 periods. Any other value for StochRSI shows the RSI relative to the high and low levels. Generally, when the StochRSI crosses from below the oversold zone (below 0.2) to the overbought zone (above 0.8), it is an indicator of an impending uptrend, whereas a StochRSI crossing in the opposite direction (from overbought to oversold) is a sign of a likely downtrend.

When the StochRSI reading is near the 0.2 or 0.8 level, it is often considered a better opportunity than when it’s in the extreme overbought or oversold territories because it suggests prices may have more room to move.

Whenever trading with Stochastic RSI, traders should consider taking into account other technical indicators, such as moving averages, as well as essential fundamental analysis to prevent errors in judgment.