once that happens, you wait to see if a bullish reversal candlestick forms, like a pin bar, insider bar etc. (For optimized results you can add or remove the strategy entry and exits based on the chart you wish to apply the script to). Here are the rules for the strategy. According to Steve Nison, oscillators are objective and augment the more subjective candlestick patterns. Apply conversely for Long Trade. (For optimized results you can add or remove the strategy entry and exits based on the chart you wish to apply the script to). 70 and 80, but preferably above 80, if going short. This can be done through the use of chart patterns, oscillators, volume analysis, fractals, and a variety of other methods. A bullish engulfing pattern is the opposite. upward the critical levels 70 or 30. The diagram below illustrates a bearish RSI divergence. "Bullish Engulfing" reversal Candlestick reversals are characterized by indecision candles or candles that show a strong shift in sentiment (from buying to selling or selling to buying), while oscillator highlight potential reversals via divergence. And that’s also how we’ll use RSI in this strategy. If we demand that the RSI with its period set to 2 is lower than 20, it means that the market has gone down a bit when we take the trade. We’ve already discussed that the volatility levels in a market could have an effect on the performance of the pattern. The RSI indicator is a momentum indicator which is capable of detecting oversold and overbought market conditions; precursors for an upward or a downward reversal respectively. The shadows The shadows (tails) of the small candlestick are short, which enables the body of the large candlestick to cover the entire candlestick from the previous day. The price will then make a significant move in one direction or the other, and close in that direction. We buy if we have: And for the exit, we once again exit after five bars. Risk capital is money that can be lost without jeopardizing ones financial security or life style. The website contents are only for educational purposes. Establishing a short position while prices are moving up can be dangerous. RSI trading indicator is set to period 2; Oversold level is set to 10 Past performance is not necessarily indicative of future results. Perfectly structured with step-by-step guides to help you understand the principles of price action analysis. For learning more about candlestick patterns and how to combine them other oscillators like stochastics, you should refer to Steve Nison’s book, Japanese Candlestick Charting Techniques. RSI Reversal Candlestick Trading Strategy is a combination of Metatrader 4 (MT4) indicators and template. Considering that we want to enter a trade because the market shows that it’s strong enough to continue up, it could be logical to assume that it’s better if: These three signs show that the market has acted forcefully, and could help to increase the accuracy of the signal. Here are the rules. Moreover, add RSI (5); add levels 10, 20, 70, 80. Have a look at your market and timeframe to see what works best for you! Candlestick patterns have become very popular since they first were introduced to the western world in the late ’80s. The RSI can fulfill this role if you use it the right way – to identify price divergences. The formation of "Bullish Engulfing" pattern must be confirmed by RSI indicator: RSI<30 (the value of the RSI of the last completed bar must be less than 30).