Double Stochastic RSI Indicator
The Double Stochastic RSI technical indicator doesn’t repaint. It combines RSI and Stochastic, two forex oscillators that are considered the best for trading reversals.
Description
Stochastic (Stoch) and RSI – two classic oscillators that are considered the best for trading reversals. The main similarity between Stochastic and RSI is that they show overbought and oversold zones for any markets, whether on daily/weekly charts or intraday. The main difference is in the formulas and that the Stochastic is more sensitive than the RSI. Is RSI or Stochastic better? Which one should I choose? You can use them together at the same time thanks to the Double Stochastic RSI indicator.
This indicator automatically analyses price dynamics to identify overbought and oversold zones.
The indicator consists of:
- the main line, with values usually ranging between 0 and 100;
- two dynamic overbought and oversold levels.
How do you read the Stoch RSI Indicator?
If the values rise above the overbought level, the main line turns blue (you can adjust the colors as you wish). This is interpreted in two ways:
- either as a period of excessively high prices;
- or as a consequence of a sustained bullish trend.
If the Double Stochastic RSI Indicator falls below oversold levels, the main line turns orange. This is interpreted as a period of too low prices or as a consequence of a sustained bearish trend.
How accurate is Double Stochastic RSI indicator?
Unfortunately (or fortunately for those who earn intraday through hard work), there are no magic arrow indicators that give guaranteed profitable buy and sell signals. The Double Stochastic RSI indicator will be frustrating if you expect to make a 5:1 profit/loss ratio.
Example #1. Buy signal with Double Stochastic RSI indicator
In this example, a buy signal is formed when 2 conditions are met:
- Double Stochastic RSI indicator’s main line moves out of oversold territory.
- A test of the former resistance level forms on the price chart.
The chart above shows this situation. The weakening yen, on the back of the ultra-soft monetary policy of the central bank, broke through the 121.30 resistance level, volumes were increased. This is a sign that 121.30 will work as support later on.
When the price returned to the 121.30 level, there was reason to follow the indicator to get a signal to enter the long position. It is marked with an arrow and “Buy”.
A stop-loss may be set in a classic way, under the previous local low. Take profits when there is a counter signal (marked with the second arrow), or other signs of danger.
Example #2. Sell Signal
In this example, a sell signal is formed when 2 conditions are met:
- Double Stochastic RSI indicator’s main line moves out of the overbought zone.
- The moving average (200) indicates a bearish trend.
The Double Stochastic RSI indicator gives a signal to enter the short position when the main line exits the overbought zone and changes its color to gray (marked with an arrow).
A stop-loss may be set above the previous local high. Profits can be taken when there is a counter signal (shown by the arrow on the chart) or using your preferred money management techniques.
Conclusion
The Double Stochastic RSI Indicator for Metatrader 4 combines two classic oscillators to search for overbought and oversold zones. It does not repaint.
Advantages of this Indicator:
- allows you to find entry points into a position;
- has flexible settings;
- can be applied to forex, crypto, equities and other markets;
- can be used by investors on daily and weekly price charts.
Disadvantages:
- doesn’t contain alerts;
- generates a lot of false signals. To increase the accuracy of the signals, try to combine the Double Stochastic RSI indicator with various methods of technical analysis – for example, candle patterns, or support and resistance levels.
Which indicator works best with Stochastic RSI? Try volume analysis.
Before risking any real money, train trading with the indicator on a demo account with a preferable forex broker.
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