The Stochastic RSI, or StochRSI, is a derivative of the RSI. Similarly to the RSI, it’s main goal is to determine whether an asset is overbought or oversold. In contrast to the RSI, however, the StochRSI isn’t generated from price data, but RSI values. On most charting tools, the values of the StochRSI will range between 0 and 1 (or 0 and 100).
The StochRSI tends to be the most useful when it’s near the upper or lower extremes of its range. However, due to its greater speed and higher sensitivity, it may produce a lot of false signals that can be challenging to interpret.
The traditional interpretation of the StochRSI is somewhat similar to that of the RSI. When it’s over 0.8, the asset may be considered overbought. When it’s below 0.2, the asset may be considered oversold. However, it’s worth mentioning that these shouldn’t be viewed as direct signals to enter or exit trades. While this information is certainly telling a story, there may be other sides to the story as well. This is why most technical analysis tools are best used in combination with other market analysis techniques.