1. Apply the trendline to the RSI indicator

It is also interesting to note that the RSI is almost identical to the price chart. When we draw trend lines for a chart price chart we can do the same for the RSI. As shown below:

When the trend lines above the RSI will fail, it acts as a foreshadowing that there is a possibility that the price will also break the same trend line in the near term.

2. Break the pattern

A breakout of a pattern can be a signal of price reversal or continuation. This is a signal observed and traded by many traders. And another interesting thing is that if a pattern on the RSI breaks at least 2-3 days before, there is also a possibility that the pattern breaks down on the price chart. As shown in the chart below:

As you can see above, the head and shoulders pattern on the RSI is broken, and then the double top pattern in the upper band of the Bollinger Bands indicator on the price chart is also broken.

3. Identify your breakout and breakdown

To recognize the breakout, when we see RSI has broken through the previous peak, while the price has not broken through the previous one. Basically, it is an early signal that price is also likely to have a similar breakout in the near future. As shown in the chart below:

Similar to a breakdown, the RSI has broken the bottom first but the price has yet to do so, this could be an early signal that the price might break down first in the near term. As shown in the chart below:

4. The role of level 50

In the RSI indicator, the mid 50 line plays a very important role in determining the trend. When the price sustains above the 50 lines, the market is bullish and vice versa, when the RSI is below 50, it shows a bearish signal. This signal will be more reliable when using the chart at larger timeframes.

As you can see in the image above, when the RSI is above 50, the price is in a good bull phase. When the RSI is below 50, the price is in a bearish phase.

It can be seen that level 50 on the RSI acts as a filter to help traders identify a trend change.

As you can see, without using overbought or diverging signals, RSI still has very useful uses, right?

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