In this article, we will introduce a version of the Stochastic RSI indicator for the Metatrader 4 trading platform. It is a simple indicator that displays the value of the Stochastic RSI below the price chart. It allows the trader to select the calculation period and the price type used to calculate the indicator value.
This tool was created by expert developers at ForexDominion.com and can be downloaded free of charge.
Before discussing this indicator and its properties, let’s explain what the Stochastic RSI is and its uses.
What is Stochastic RSI?
The Stochastic RSI is a technical indicator used in the technical analysis of financial markets, such as the stock market, the foreign exchange market (Forex), and others. It combines two popular indicators: the Relative Strength Index (RSI) and the Stochastic Oscillator.
Stochastic RSI combines these two indicators to provide buy and sell signals. When the Stochastic RSI is above a certain level, for example, 80, the market is considered overbought, which could be a sell signal. On the other hand, when the Stochastic RSI is below a level, such as 20, the market is considered oversold, which could be a buy signal.
This indicator can help traders and investors make informed decisions about when to enter or exit a position based on market conditions and signals generated by the Stochastic RSI.
You can find more information about this technical indicator in the following article: The Stochastic RSI in trading
As expected, its calculation formula combines the calculation formulas of both the RSI and the Stochastic Oscillator, as shown below:
The calculation of Stochastic RSI involves two steps: first, the Stochastic Oscillator is calculated, and then the Stochastic RSI is calculated using that oscillator. Here is the step-by-step process:
- Step 1: Calculate the Stochastic Oscillator – This indicator is calculated in two lines, %K (the stochastic value calculated from the price) and %D (a moving average that smoothens the %K value). You can see the calculation formula in the Stochastic Oscillator article on this site.
- Step 2: Calculate the Stochastic RSI – Once you have calculated %K and %D, you can calculate the Stochastic RSI. The formula for Stochastic RSI is:
Stochastic RSI = [(%K current – %K minimum) / (%K maximum – %K minimum)] * 100
Where:
%K current is the %K value calculated in step 1.
%K minimum is the minimum value of %K over a specific period (for example, the last 14 periods).
%K maximum is the maximum value of %K during the same period.
The result of the Stochastic RSI will oscillate between 0 and 100. As mentioned earlier, typical levels used to identify overbought and oversold conditions are 80 and 20, respectively.
Stochastic RSI Indicator for MT4
Based on the above formula, this indicator can calculate the Stochastic RSI in any market and timeframe on MT4. As indicated earlier, it displays a window below the price chart with values ranging from 0-100, as shown in the following image:
Additionally, this indicator displays overbought and oversold levels where there is a probability of the market changing direction (it is just a signal and should not be used as the sole criterion for determining trend changes). By default, the preset values are 20 (oversold) and 80 (overbought), but the trader can modify them as deemed necessary.
Stochastic RSI MT4 Settings
This indicator is quite simple and has few configuration parameters. The following image shows the configuration window:
- Price Applied in Stochastic RSI Calculation (Default Value – Close): This parameter allows selecting the type of price used in the indicator calculation (Close, Open, High, Low, Typical, Weighted, Median).
- RSI Calculation Period (Default Value – 14): It is the number of periods used in the calculation of the RSI.
- (%K) Stochastic RSI calculation periods (Default Value – 14): The number of periods used in the calculation of Stochastic RSI.
- (%D) Calculation period of %D of the Stochastic RSI (Default Value – 3): The number of periods used in the calculation of %D (SMA of Stochastic RSI).
- Indicator Overbought Level (default value – 80): Indicates the overbought level at which the market is likely to change from bullish to bearish.
- Indicator Oversold Level (default value – 20): Indicates the oversold level at which the market is likely to change from bearish to bullish.
Recommendations for the Use of This and Any Other Technical Indicator
No technical indicator should be used as the sole criterion for opening and closing positions in the market, as the Stochastic RSI can also generate false signals, like any other market analysis tool. There are no infallible technical indicators, even those developed based on the most complex algorithms.
The Stochastic RSI reacts more quickly to changes in price compared to the standard RSI and is used to determine overbought and oversold conditions in the market. However, just because this indicator indicates that a market is overbought does not necessarily mean that the price will decrease. Prices can remain overbought or oversold for extended periods, especially in trending markets.
The Stochastic RSI should be used as an integral part of a developed trading system that combines other indicators. It can be combined with other tools such as moving averages, Fibonacci retracements, etc.
How to Obtain the Stochastic RSI Indicator for MT4?
This indicator was created by the team at ForexDominion.com and can be downloaded and used free of charge. You can download it through the following link:
You can access a complete list of free custom indicators for MT4 and MT5 in the following article: List of Custom Indicators For Metatrader
Are you interested in developing a custom technical indicator or Expert Advisor for MT4 or MT5?
If you are interested in building a custom indicator or Expert Advisor (automated trading system) based on your own strategy or trading idea but don’t have the time or knowledge to do it yourself, we can do the job for you in no time and at the best prices. You can contact us through: rcanessa@gmail.com
