D. Rsi and Stochostic

" You have to expect things of yourself before you can do them "

D. RSI and Stochostic Oscilator

Rsi and stochostis is overbought and oversold indicators, but remeber you cannot decide to buy or sell if only you see the prices are in the overbought or oversold position , you need other indicators to confirm. Remember that if the prices are in the oversold or overbought position it means that the price might be reserved but we don`t know when it will reserved.

1. Rsi

RSI was developed by J. Welles Wilder and introduced in his 1978 book, New Concept In Technical Trading Sistem , the Relative Strength Index is an extremely useful and popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation. In his book, Wilder recommends using 14 periods to get better results.

The RSI's full name is actually rather unfortunate as it is easily confused with other forms of Relative Strength analysis such as John Murphy's "Relative Strength" charts and IBD's "Relative Strength" rankings. Most other kinds of "Relative Strength" stuff involve using more than one stock in the calculation. Like most true indicators, the RSI only needs one stock to be computed. In order to avoid confusion, many people avoid using the RSI's full name and just call it "the RSI."

Wilder recommended using 70 and 30 and overbought and oversold levels respectively. Generally, if the RSI rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 70, it is a bearish signal. Some traders identify the long-term trend and then use extreme readings for entry points. If the long-term trend is bullish, then oversold readings could mark potential entry points.

2. Stochostic Oscilator

Stochostic oscilator was developed by George C Lane at 1950, this indicator is one of the momentum indicators that only show the closing posistion.

The calculation is very simple :

K = ((C-L)/(H-L))*100

Where :

K =Lane`s stochostic
C = Latest closing price
L = Then period low price
H = Then n-period high price

Additionally , Lane methods specifically required that the K be smoothed twice with three - period simple moving average. Two other calculations are then made :

a. SK = three period simple moving average of K
b. SD = three period simple moving average of SK

The basic method is to buy when Sk is above the SD , and sell when Sk moves below the Sd. However stochosic employ fixed period-to-period calculation that can move about erractically as the earliest data point is dropped for the next day`s calculation.


Usually use 20 and 80 as the oversold and overbought areas, please you need others indicator to confirm it do not buy just because you see the prices are at the overbought position and vice versa, use other indicators to confirm it.