Using Stochastic and STOCH RSI indicators in crypto trading
Once you’ve learned the basic indicators in cryptocurrency it’s time to move on to some more advanced options. While the basics are great, being able to add even more indicators to your trading tool belt can help you to identify even more opportunities to make profits.
So, in this article, we’ll be talking about STOCH. This interesting indicator can provide you with some great opportunities and you should learn to use it. What is it though and how can you apply it appropriately to your crypto trading strategies? Let’s find out!
Stochastic indicator in crypto trading explained
This type of indicator is used to show momentum in a cryptocurrency coin or token’s price. It does this by comparing the most recent closing price to the previous high/low range for the asset.
It works a bit differently than other indicators do though. It doesn’t really follow the price of the asset or even its trading volume like other indicators would. Stochastic indicators instead follow the speed of these price changes or the momentum.
This gives it a very unique advantage when it comes to using it for cryptocurrency trading. By using this kind of indicator you can actually see which way the momentum is going before the price change occurs. A Stochastic indicator can lead the charge so to speak, and you can use it to make predictions that could save a potentially bad trade from disaster or put you in a great position if you can do so quickly.
How to read STOCH?
Much like the RSI indicator, you can actually use STOCH as a way to see if the market is overbought or oversold on specific crypto assets. Just in a different way. If the reading on the chart indicates that the STOCH is over 80, then the coin or token you’re looking at is overbought. That means that you should be careful because the price will very likely correct and you could stand to lose a significant sum of money if you buy now.
Conversely, if the STOCH being displayed to you reads as below 20, then it’s likely that the coin or token is oversold. In this case, you might actually want to buy more of whatever asset this is because you could be finding a great profit making opportunity.
This number ranges from 0 to 100 and you won’t even really have to do any calculations to use it. Most trading tools will display this for you, and all you need to know is how to read this indicator and know what the number scale means as we’ve talked about above.
What kind of cryptocurrency trading strategies is STOCH suitable for?
You could take advantage of STOCH for nearly any strategy. It’s a lead indicator, that means that it tells you what is likely to happen before other indicators reveal themselves.
It’s also very easy to learn, and you don’t need any specialized knowledge to utilize it. This makes it a great indicator to pick for those who are still learning the basics of technical analysis. It doesn’t take much time to use it and it pairs well with many other indicator combinations.
Stochastic RSI definition
This is a very interesting crypto trading indicator which actually combines both the RSI and the STOCH. You use this indicator to figure out the RSI relative to what you’d find with the STOCH. You can use this to identify overbought or oversold conditions, but be careful.
Since STOCHRSI is kind of an indicator of a future indicator it can be disconnected from the actual price. This might lead you to false positives if you’re not experienced with it.
What is the difference between STOCH and STOCHRSI?
The STOCH RSI is an indicator which refers to the currency RSI of whatever asset you’re trading. It’s an indicator for an indicator. The STOCH applies directly to the asset at hand. While both can be useful, they are actually measuring different things, and it’s important to keep that straight when you’re using them.
Examples of STOCH and STOCHRSI indicators
Jimmy is interested in trading a specific cryptocurrency. However, he’s not really sure if it’s a good time to buy or not. There’s been a ton of activity happening, and he’s afraid that he could be buying right into a massive sell-off.
He decides to use STOCH to figure out when his buy-in should be. After looking at his Bitsgap cryptocurrency trading tool he can actually see that the STOCH for the asset in question is sitting below 20. This is a great sign, and he feels pretty certain that he’s making a good buy.
However, he also wants to use the STOCHRSI in order to see how strong his other indicators are right now. The STOCHRSI for the asset is currently at .20, within the range that it should be a good opportunity for him to buy. Having confirmed his thoughts with multiple indicators, he feels safe making a purchase.
STOCHRSI vs RSI - which one is better?
It’s hard to say which is better because these indicators give you different data. You could say that the STOCH RSI is a measure of the strength of the normal RSI. However, since the first is actually an indicator of the latter, the normal RSI method is actually closer to the real price of the crypto asset.
Therefore, you might actually want to try using both and comparing them to draw your conclusion. There is sometimes a disconnect when using the STOCH RSI which could prove problematic for your calculations.
It’s important to not rely too heavily on just one trading signal in your strategy because it is possible for them to fail you. Using multiple trading signals can help you to see something that you’ve missed or to see if something is up that might render your TA incorrect.