You will come accross many technical indicators. But one of the most popular technical indicator is the RSI ( Relative Strength Index) Indicator. Many traders use RSI indicator to determine the overbought or oversold condition in the market. RSI Indicator values range between 0 and 100. When RSI indicator value is less than 30, it is an indication that the market is oversold. And when RSI indicator reading is more than 70, it means that the market is overbought. Get the Ultimate Swing Trading Software FREE. Learn Candlestick Charting. Master these Candlestick Patterns. 

The good thing is that you can combine RSI reading with candlestick reversal patterns to further confirm that a reversal is imminent and you can take a long position. You can also use the RSI to select your exit level.

Suppose you are trading a stock with the RSI indicator value under 30 meaning that the market is oversold. You spot a three inside up reversal candlestick pattern appears after many bearish days. This is a signal that the market is changing gear and turning bullish from bearish with more buyers are stepping in. This is the best time to go long on this stock.

The good thing about the three inside up reversal pattern is that it takes three days to form. When you see this pattern on the first two days, wait for the third day candle for confirmation tha the pattern is indeed the three inside up candlestick reversal pattern. On the first day, you will find a bearish candle followed on the second day with a bullish candle with a small body. When you spot this pattern, you should get ready for the third day candle to be bullish and bigger than the second day to confirm that this is indeed the bullish three inside up candlestick pattern. So three days give you plenty of time to observe the market and confirm that the market is indeed turning bullish from bearish and the trend is about to reverse itself.

Now, when the three inside up candlestick pattern appears, it is an indication that the market has indeed turned bullish and you are about to see a bullish market for many days. This means that the market has reversed and a new uptrend has started. This is the best time to go long on the stock. Place the stop loss close to the position where you went long as the market is not supposed to return to that level for many days. As long as the RSI reading is below 70, you can rest and relax. But don’t wait for the RSI reading to go above 70, get alert when the RSI reading goes above 50. This is an indication that the market is above to become overbought and you should start looking for a candlestick reversal pattern to appear to confirm this.

When you find the candlestick reversal pattern like the bearish three outside up candlestick reversal pattern, this is the confirmation that the market is indeed turning bearish now. This is the time to take profit and exit the market. Combining RSI or Stochastic Indicator with Candlestick Reversal Patterns can be powerful tool in your trading arsenal.