Overview

This strategy combines the Relative Strength Index (RSI) indicator with candlestick patterns to identify trend-following entry signals when RSI reaches overbought or oversold levels.

How It Works

1. Calculate RSI values, with 70 as overbought line and 30 as oversold line.

2. View RSI crossing above 30 as oversold signal, and RSI crossing below 70 as overbought signal.

3. When above signals occur, check if the current or previous candle forms specific patterns like white/black marubozu, hammer/hanging man etc.

4. If both RSI signal and candlestick condition are met, generate buy/sell signals.

5. Correspondingly, buy on oversold RSI when bullish patterns like hammer occur, and sell on overbought RSI when bearish patterns like shooting star occur.

6. Identify complex combination patterns like tweezer, morning/evening stars for entry signals.

7. RSI crossing midline acts as exit signal.

Advantages

1. Combining indicator and pattern filters fake signals and improves entry accuracy.

2. Candlestick pattern captures significant trend reversal points.

3. RSI overbought/oversold signals increase winning opportunities.

4. Double/Triple candlestick combos catch stronger reversals.

5. RSI cross midline helps lock in profits.

Risks

1. RSI lag may miss reversal points.

2. Some candlestick signals are weak and give false signals.

3. No stop loss based on recent high/low, risks uncontrolled loss.

4. No trailing stop loss, huge adverse move may enlarge loss.

5. Insufficient backtest data may bias parameter optimization.

Optimization

1. Add other filters like MACD, Bollinger Bands.

2. Add trendline for stop loss/profit taking.

3. Optimize RSI parameters based on backtest results.

4. Enhance stops like trailing stop, zone stop etc.

5. Test longer datasets to evaluate parameter robustness.

6. Adjust parameters for different products and market regimes.

Conclusion

This strategy integrates the strengths of RSI and candlestick pattern recognition to enter on high quality signals at overbought/oversold turning points for trend-following. Strong combo patterns also improve odds. But risks like lag and false signals remain, requiring combination with other techniques and further optimization. Overall it blends multiple winning ideas and may achieve good results if properly parameterized.