I was talking with some beginner traders yesterday and realized that most of them use the RSI indicator completely incorrectly. Everyone places a sell order as soon as the indicator goes above 70 and a buy order when it falls below 30, and this is one of the biggest mistakes that can cost you a lot of money.

The truth is that the price can keep rising even if the indicator reaches 90, or continue falling even if it hits 10—especially during strong momentum periods. I tried this straightforward approach at first and lost a good amount of money before I understood what was really going on.

The difference between me and those who end up losing is that I started using the RSI indicator along with other tools to confirm the signal. The tool that helped me the most was Japanese candlestick patterns. For example, when the indicator reaches the overbought area, instead of entering right away, I wait for a confirmation pattern like bearish engulfing or bullish engulfing. That way, I enter at the right time, and the profit-to-risk ratio is much better.

Another thing many people ignore is divergence. This is one of the strongest signals that the RSI indicator provides. The idea is to notice a mismatch between the price movement and the indicator—for example, the price makes a lower low, but the indicator makes a higher low. This often means a reversal is coming. But as I said, you should confirm using another tool before opening a position.

A third thing that many traders don’t focus on is the midline at the 50 level. This line helps you identify the overall momentum direction. When the indicator is above 50, the momentum is bullish and you look for buying opportunities; when it drops below 50, the momentum becomes bearish. Simple, but very effective.

The last important thing is the settings. Most people use the default 14-period setting, but that doesn’t necessarily mean it’s the best for your trading style. As a swing trader, I use the 25-period setting so the indicator is less sensitive to day-to-day fluctuations. But if you trade short-term, a 9-period setting is better so the indicator responds faster.

In summary, the RSI indicator is a very powerful tool, but you have to use it correctly. Don’t rely on it alone—combine it with Japanese candlesticks, support and resistance levels, or trend lines. This way, you’ll have a clearer picture, enter the market with more confidence, and achieve better profits.