Table of contents

• What is fundamental analysis?
• What is technical analysis?
• What is a lag indicator?
• What is a leading indicator?
• Understand random RSI:
• The difference between RSI and random RSI:
• How does StochRSI work?
• How to interpret Stochastic RSI metrics?
• How to calculate random RSI?
• Conclusion

The Stochastic RSI is a technical tool used to evaluate the strength of assets over a specific period of time. The numerical value of this indicator is calculated based on RSI and is one of the important means used by analysts to identify market trends and predict future price trends.

What is fundamental analysis?

Fundamental analysis focuses on examining the project itself, its social ecology, and related news events. This method covers research on multiple aspects of the project, such as team background, technology implementation, market positioning and industry trends. It is often called a top-down analysis method, suitable for investors who want to judge their long-term value by deeply understanding the fundamentals of a crypto asset. In contrast, technical analysis focuses on the price chart pattern, finds rules through historical data, and then speculates on possible future price paths, including key elements such as trend direction, fluctuation characteristics, support and resistance levels.

What is technical analysis?

The core of technical analysis is to use historical price and trading volume data to understand market behavior. It helps traders identify potential price patterns and make decisions based on them. This process usually relies on various technical indicators to reveal trend intensity, momentum changes and reversal signals. Each trader's indicator combination varies depending on the individual strategy. For beginners, it is crucial to master the functions of each indicator and its application scenarios. Random RSI is one of the widely used indicators that helps capture opportunities for short-term price fluctuations.

What is a lag indicator?

The lag indicator reflects the market changes that have occurred, and the signal usually appears after the trend is formed. Such indicators help confirm the existence of the trend and provide investors with a more stable reference basis. The term "market idea" refers to the collective expectations of market participants for the future trend, and the lagging indicator is the reflection of this expectation in the price trend.

What is a leading indicator?

Leading indicators aim to indicate the direction of price movements in advance and help traders react early in the trend. These indicators provide additional guidance when the chart trend is not clear enough. They serve as technical tools to help understand the price direction of a particular asset and its potential response to major events. Among them, random RSI and Bollinger bands are relatively popular leading indicators and are widely used in trend identification and trading timing judgment.

Understand random RSI:

Random RSI combines the characteristics of two commonly used momentum indicators: one measures the recent price fluctuations and the other assesses the current price relative to past performance. When an asset rises rapidly in a very short period of time, it may indicate the risk of a pullback in the short term. Nevertheless, if the asset has continued to rise for many days, a comprehensive judgment is required based on other factors.

The difference between RSI and random RSI:

RSI (relative strength index) reflects the overbought or oversold status of assets by performing an exponential weighted average of price changes. StochRSI (StochRSI) applies the calculation method of the random oscillator to the RSI value itself, forming a new indicator that fluctuates between 0 and 1 (or 0-100 interval, depending on the setting). This makes StochRSI more sensitive to short-term fluctuations in RSI and can send buying and selling signals faster. Since its calculations are based on RSI rather than the original price, momentum changes can be revealed more finely.

How does StochRSI work?

StochRSI is generated by applying standard random formulas to RSI sequence data, and the result is a value between 0 and 1, fluctuating around the midline of 0.5. Some versions multiply the result by 100, making its range from 0 to 100, and the center line is 50. In addition, many charts will add a 3-day simple moving average as signal line to filter noise and reduce misjudgment.

The calculation formula is as follows:

StochRSI = (current RSI - lowest RSI in the last 14 periods) / (highest RSI in the last 14 periods - lowest RSI in the last 14 periods)

The most commonly used period is 14, but can be adjusted according to the trading style. The time unit can be days, hours, or minutes. For example, on the daily chart, the 14 cycle represents the past 14 trading days; on the hourly chart, it is 14 hours. 20 cycles are also one of the common choices.

When the indicator is above 80 (or 0.8), it is considered overbought; if it is below 20 (or 0.2), it is oversold. Although the numerical ranges are different, their market meanings are consistent.

How to interpret Stochastic RSI metrics?

StochRSI is most valuable when approaching the extreme value area. Mainly used to identify potential buying or selling opportunities, as well as trend reversal signals. It is generally believed that a reading of ≤0.2 means that the asset may be in an oversold state and has rebound potential; ≥0.8 means that it is overbought and may cause a pullback.

At the same time, the trend around the mid-line 0.5 can also reveal the trend direction. If StochRSI runs stably above 0.5 and gradually rises, it may mean that the upward trend continues; on the contrary, if it continues to fall below 0.5 and approaches 0.2, it implies that the downward trend is strengthening.

How to calculate random RSI?

The calculation of random RSI depends on the following formula:

in:

RSI = Current RSI value
min [RSI] = Minimum RSI value in the last 14 cycles
max [RSI] = Maximum RSI value in the last 14 cycles

Random RSI is designed to determine whether an asset enters an overbought or oversold area, thereby guiding trading decisions. The calculation steps include:

• Collect RSI data for 14 consecutive cycles;
• Determines the RSI value of the current cycle, as well as the highest and lowest RSIs in the past 14 cycles;
• Substitute the formula to calculate the current StochRSI;
• Each new cycle is added, the data window is updated and recalculated.

Random RSI combines the relationship between price changes and the closing price of the previous period, and is a medium- and short-term momentum indicator and is suitable for trading scenarios. It integrates the dual mechanisms of measuring the rise and fall and relative position, and improves the speed of response to changes in market sentiment. The above figure shows the comparison between Bitcoin's RSI and random RSI, which shows that the latter is more sensitive to price fluctuations. A slight rise can trigger an overbought signal (such as more than 77), and the same is true for the decline. Therefore, it is an effective tool for traders to monitor trend changes.

Conclusion

Since Stochastic RSI is extremely sensitive to market volatility and can quickly reflect price momentum changes, it has important reference value for traders and analysts and is suitable for short-term trading or trend confirmation.

However, high sensitivity also means more false signals, especially in the highly volatile crypto market. Therefore, it is recommended to use it in combination with other technical tools such as MACD, moving average systems or volumes to improve signal reliability. Relying on StochRSI alone may lead to misjudgment, and comprehensive analysis is the key to a stable transaction.

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