How To Trade - RSI Indicator, Chart Patterns, Trend Lines and How Does It Work

Traders can draw trend lines using RSI indicatorin the same way as trend lines on the price charts. RSI trend lines are plotted as the same way as trend-lines are plotted on the chart; by joining consecutive highs of the RSI Indicator or consecutive lows on the RSI Indicator.

Chart patterns (head and shoulders, or triangle chart patterns) are often formed on the RSI indicator using - RSI indicator forms chart patterns: head and shoulders, triangles and more that may or may not be visible on the price chart. As shown on the chart below the Reverse Head and Shoulders reversal formation is clearly shown on the RSI indicator.

Sometimes levels of support and resistance are demonstrated better on the RSI than on the price chart.

• In an uptrend the support levels should not be broken at any one time, if they are broken then price will also break the support levels and the upward trend is going to reverse.
  
• In a downtrend the resistance levels should not be broken, if they are broken then price will also break the resistance levels, and the downward is going to reverse.

In the example above when the third resistance level was broken the downtrend reversed to an upward trend and when the sixth support was broken the uptrend reversed and broke the upward trend line.