Does Stochastic RSI Work? 20 and 80 Tested on S&P 500 Stocks
Stochastic RSI crossing 20 and 80 on 483 S&P 500 stocks, 2006 to 2026: no clear difference from ordinary days over the next 10 days in any of 8 signal tests.
The Test Bench › Mean reversion › Stochastic RSI
How Stochastic RSI places RSI in its own recent range, what %K, %D, 20 and 80 mean, and how it differs from RSI, with what our tests found.
Stochastic RSI is an indicator of an indicator: it takes RSI and asks where today’s reading sits between its recent low and high. Because it measures RSI against its own 14-day range, it can swing from one extreme to the other within days, and traders use it to time short swings and mean reversion entries.
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Stochastic RSI, introduced by Tushar Chande and Stanley Kroll in The New Technical Trader (1994), applies the stochastic formula to RSI itself: it shows where today’s RSI(14) sits between its lowest and highest values of the last 14 days, from 0 to 100. GU Analyser’s default, a common choice, uses an RSI length of 14 and a stochastic length of 14, smooths the line over 3 days (%K) and adds a 3-day average of it (%D); platforms name these settings differently. Chande and Kroll’s own version ran from 0 to 1 with no smoothing, which is why some platforms show a more jagged line or a different scale.
For example, if RSI(14) ranged from 38.0 to 62.0 over the last 14 days and reads 41.0 today, Stochastic RSI is (41.0 − 38.0) ÷ (62.0 − 38.0) = 12.5, below 20, even though RSI(14) itself sits in the middle of its usual range.
When RSI(14) has not moved at all over the 14 days, the highest and lowest values are equal and the formula divides by zero. Platforms handle this differently; GU Analyser shows no reading for that day.
If the two days before gave 18.0 and 9.0, %K is (18.0 + 9.0 + 12.5) ÷ 3 = 13.2. With %K at 21.0 and 15.5 on those two days, %D is (21.0 + 15.5 + 13.2) ÷ 3 = 16.6: %K below %D, the line still falling.
Below 20 is called oversold: RSI(14) is near the bottom of its own recent range. That is a statement about RSI’s recent range, and RSI(14) itself may be far from its own oversold line. Above 80 is called overbought. Because the line is measured against its own range, it reaches these zones far more often than RSI(14) reaches 30 and 70, and it can sit at 0 or 100 for several days. The usual signal is the line leaving a zone: crossing back above 20, or back below 80.
RSI is built from prices; Stochastic RSI is built from RSI. A Stochastic RSI of 0 says RSI(14) is at its 14-day low, which can happen with RSI(14) near 40 and far from oversold. Many readings that look extreme on Stochastic RSI are ordinary on RSI, so the two sets of zones are not interchangeable.
The Stochastic oscillator uses the same formula on prices: it places today’s close within the high and low of the last 14 days. Stochastic RSI places RSI within its own range, so it moves faster and reaches its extremes more often.
| RSI(14) | Stochastic RSI | |
|---|---|---|
| Introduced by | J. Welles Wilder, 1978 | Tushar Chande and Stanley Kroll, 1994 |
| Input | Closing prices | RSI(14) |
| Measures | The balance of up and down closes | Where RSI sits in its own 14-day range |
| Usual zones | 30 and 70 | 20 and 80 |
| A reading of 0 means | Almost nothing but down closes recently | RSI(14) at its 14-day low |
| Trades in our backtest (typical stock, 20 years) | 6 | 209 |
Mean reversion trading explains the entries, exits and risks of these rules, with Stochastic RSI beside RSI(14), RSI(2) and ConnorsRSI.
How to read these results. An event study compares the days after a signal with ordinary days of the same stocks; a backtest runs one complete rule with costs and reports a median total return per stock over the whole period. “Clear” means the 95% interval excluded zero under every test setting we ran. All tests use today’s S&P 500 members projected back, which favours rules that buy dips, and price returns without dividends.
The event studies compared the days after a signal with ordinary days for the same S&P 500 stocks, 2006 to 2026; the backtest ran the signals as one trading rule.
The two results answer different questions. The event study compares the next 10 days after a signal with ordinary days; the backtest buys each dip and sells after the first close above the 5-day average, usually within days, so it can collect small rebounds that the 10-day comparison does not show.
Each study states the signal, the stocks, the period and what it compares the signal with. The results show what happened in the tested sample, and each study states what the test cannot establish.
Stochastic RSI crossing 20 and 80 on 483 S&P 500 stocks, 2006 to 2026: no clear difference from ordinary days over the next 10 days in any of 8 signal tests.
Four RSI entries under one dip-buying rule (above the 200-day average, out on a close above the 5-day average) on 483 S&P 500 stocks, 2006 to 2026, against buying and holding.
Stochastic RSI, introduced by Tushar Chande and Stanley Kroll in 1994, places today’s RSI(14) within its own range over the last 14 days, on a 0 to 100 scale, usually smoothed over 3 days. It is read with 20 and 80 in place of 30 and 70, and reaches them far more often than RSI(14).
Stochastic RSI = (today’s RSI − lowest RSI of the last 14 days) ÷ (highest RSI − lowest RSI), scaled to 0 to 100. The %K line is that value averaged over 3 days, and %D is %K averaged over 3 days.
A reading of 0 means RSI(14) is at its lowest level of the last 14 days; 100 means it is at its highest. It describes where RSI sits in its own recent range, so it can read 0 while RSI(14) itself is near 40.
They are the usual zones: below 20 is called oversold and above 80 overbought. Many traders act when the line leaves a zone, crossing back above 20 or back below 80.
%K is Stochastic RSI smoothed over 3 days; %D is a 3-day average of %K, so it moves more slowly. A %K crossing above %D is read as the line turning up.
The Stochastic oscillator places today’s close within the high and low of the last 14 days. Stochastic RSI applies the same formula to RSI(14), placing it within its own 14-day range. Both are read with 20 and 80; Stochastic RSI moves faster and reaches them more often.
RSI measures the balance of recent up and down closes. Stochastic RSI takes RSI(14) as its input and shows where today’s reading sits within its own range over the last 14 days. RSI is usually read with 30 and 70; Stochastic RSI with 20 and 80, and it reaches them much more often.
There is no single best setting, and platforms name the settings differently. GU Analyser’s default uses an RSI length of 14, a stochastic length of 14, 3-day smoothing for %K and 3-day smoothing for %D, a common choice. Shorter settings react faster and reach 0 and 100 even more often. Our tests use the default.
In our test on 483 S&P 500 stocks, the 10 days after Stochastic RSI crossed 20 or 80 returned within 0.16 percentage points of ordinary days in every case, with no clear difference. In a separate backtest using the same signal as the entry of one dip-buying rule, Stochastic RSI ranked second of the four entries by median total return per stock over 2006 to 2026 (+44%), and trailed buying and holding on most stocks.
Yes. In GU Analyser Stochastic RSI %K is a built-in signal: build the entry and exit rules on a visual canvas and run a backtest or an event study on daily bars, with no code.
Want to test your own Stochastic RSI rule?
Set the zones and the trend filter, and measure what followed the signal across your stocks, or backtest it with an entry, an exit and a cost on each trade.
Create a free account and build your own strategies → or read how Stochastic RSI is calculated in the app →The methods: how a backtest is built · how an event study works