Stochastics vs. RSI: A Technical Indicator Showdown // Stock Market Basics, Stock Market 101
welcome to looking at the markets with David Moadel
today we're going to talk about stochastics vs-rs I a technical
indicators show down so we're going to compare and contrast these two very
popular
technical indicators so here we go
the stochastic oscillator developed in the nineteen fifties by george lane and
there is the man himself George Lane the stochastic oscillator is a momentum
indicator that looks and behaves somewhat like the RSI or relative
strength index like the RSI the stochastic oscillator is often used at a
default 14 . setting also like the RSI the stochastic oscillator is range-bound
and can help to determine overbought and oversold price levels
traditionally stochastics would interpret over 80 as overbought and
under-20 as oversold while RS I would traditionally interpret over 70 as
overbought and under 30 as oversold
so let's look at an example
we're going to use apple for this example and I put both the slow and fast
stochastics here here the slow stochastics and the fast
stochastics as well as the 14 . RSI here in fact they're all 14 . and they're all
on their traditional settings and this is a daily candlestick chart for apple
alright so let's and this is all courtesy of stockcharts.com which as of
today is free to use for these charts that i use and so it's a
it's a great website and i like to use it a lot
alright so now notice
apple had some very nice polish price action here but there was there was a
downtrend and then boom in earnings miss back in late April
all right now also over here recently in late July
there was an earnings beat good earnings numbers and so is it went straight up
so let's take a look at how the slow and fast stochastics as well as the RSI
reacted to these price changes
well notice that here when Apple went down
moderately this was before the earnings miss the earnings mrs. here when it went
down a lot in one day and then went down some more
in the following days but in the days when it just went down somewhat notice
that the slow and fast stochastics went down sharply even even before the
earnings miss this is corresponding to the moderate price decline it went from
all the way up here to all the way down here very quickly and that's on the slow
slow slow stochastics on the fast stochastics it went down even more
sharply from an even higher place to a very low place and notice that the the
angle is even sharper here than here
so you'll notice that the slow stochastics are a little bit less
extreme and a little bit more smoothed out less jerky
then the fast stochastic sex
compare that to the 14 . RSI when yes it went down from the upper . to the
midpoint
but not nearly as sharply as the stochastic readings did it didn't go
down from above the top two below the bottom
it went from right at the top to the middle
ok now during the earnings miss the RSI went from the middle or around the
middle
- under the Oversoul reading whereas the slow and stochastic slow and fast castex
just pretty much stayed where they were because they were already about as low
as they can go
so we can already see that the slow and fast stochastic 6r jerkier or more
reactive then be RS I at least in this case and have noticed this to be true
pretty consistently so let's take a look at when Apple had a nice recovery
it didn't recover all the way but it recovered most of the loss at least from
the earnings report or at least part of the loss from the earnings report and we
can see that during this run up here
these stochastics both the slow in the fast went from deeply over sold to
deeply overbought you know way below the bottom two way way above the top here
and again the fast stochastics did this
a little more quickly or more sharply than the slow stochastics did
whereas the RSI went from heavily over sold to somewhat above the midpoint
but not nearly as high as the stochastics did so again less extreme
less jerky less reactive and so as you can see you're getting fewer overbought
and oversold readings on the RSI compared to the stochastics let's go
down or let's go over here
this was an earnings beat you at a Down trend but boom earnings be so when up
quickly and you'll notice the slow stochastics went from around the
midpoint right directly to the overbought range
the fast stochastic switch are even more even more jerky than the slow
stochastics went from way down here all the way up to an even higher / bought
reading very quickly compare that and compare that to RS I which went from
around the midpoint to barely touching the overbought level
it didn't even pierce it it just touched it
unlike the stochastics which went quite a bit above the overbought level here
so again you're getting fewer or less often readings of overbought and
oversold on the RSI compared to the fast and slow stochastics in my opinion the
stochastics compared to the RSI because they're getting more frequent over box
and oversold readings
you might get some false signals compared to the RSI which i think would
get fewer false signals in my opinion as you can see from the example of the
apple daily chart RSI is less jerky or reactive than stochastics and therefore
gives fewer overbought and oversold signals i typically prefer to trade less
often rather than more often
so r SI fits my trading style better
however stochastics certainly might be a better fit for you are particular
trading style and that's especially true if you prefer to get more frequent
overbought and oversold signals
here's the takeaway stochastics and rs I can both be useful tools in determining
overbought and oversold price levels you can choose one or both depending on your
individual trading preferences and if you'd like more help with technical
indicators or just finance in general
stocks options trading and investing
well i can help i can help you for sure feel free to contact me
my email address is David Modell @ gmail.com
thank you so much and i'll talk to you soon
yeah