The Stochastic RSI indicator works very similarly to the Stochastic. As its name describes, it combines the indicators "Stochastic" and "RSI" in its calculation, making it an indicator of an indicator.

Specifically, the StochRSI applies the Stochastic formula to RSI values instead of price data. This new calculation results in a more volatile indicator than its primitive version, which will generate trades.

As the Stochastic and RSI, the StochRSI is based on overbought and oversold zones. When it goes from the neutral to the oversold zone, the StochRSI interprets it as a buy point since the price is likely to correct upwards.

Likewise, when the indicator crosses the overbought zone, the bears can take over the market to push the price downwards after a sudden rise.