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The Stochastic-RSI Indicator — The Full Guide in Python.
Creating the Stochastic-RSI Indicator in Python.
There is a technical indicator out there born from a forbidden love between two known technical indicators. It shares similar traits as its parents by being trapped between two boundaries. It also behaves like its parents by giving contrarian signals. The father’s name is the RSI while the mother’s name is the Stochastic Oscillator. Their infant? The Stochastic-RSI indicator, our protagonist of this article.
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The Relative Strength Index
The RSI is without a doubt the most famous momentum indicator out there, and this is to be expected as it has many strengths especially in ranging markets. It is also bounded between 0 and 100 which makes it easier to interpret. Also, the fact that it is famous, contributes to its potential.
This is because the more traders and portfolio managers look at the RSI, the more people will react based on its signals and this in turn can push market prices. Of course, we cannot prove this idea, but it is intuitive as one of the basis of Technical Analysis is that it is self-fulfilling.
The RSI is calculated using a rather simple way. We first start by taking price differences of one period. This means that we have to subtract every closing price from the one before it. Then, we will calculate the smoothed average of the positive differences and divide it by the smoothed average of the negative differences. The last calculation gives us the Relative Strength which is then used in the RSI formula to be transformed into a…
