Questions
When the RSI-Indicator was sending the oversold signal, which position do you take either Long or Short?
When the RSI-Indicator was sending the overbought signal, which position do you take either Short or Long?
And, when the RSI-Indicator was sending the divergence(convergence) signal, which position do you take either Short or Long?

Introduction

What is RSI?
At first, we explains what is RSI. Wikipedia said,
The relative strength index (RSI) is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price.
By Wikipedia.

And, in this study, we use the Dukascopy’s default RSI-Inidicator which was setting period as 26.

Next, we explain briefly about trading rules of strategy which was using for getting sample data. It's a kind of the breakout trading strategy. Point is that it is a counter type strategy. When last bar's close price was hit the MinMax Line, then it take a position which is against the breakout direction. Period of MinMax Line is 26. Stop Loss is 0.5% of the entry price. Take Profit is 0.1% of the entry price. Check the chap.2 of this articles for more details.

Data Analysis
All right then, let’s move onto the main subject of this study. Look at the right graph and the following table.

*Important: RSI values in this study are all adjusted to same direction. The RSI values of the Long position (orders which was breakout the min line) is already all inverted (100-RSI value). Simply put, it's almost same as absolute value of RSI - 50. So, 0 means no trend, 100 means overtrend (overheats).*

 0～49 50～54 55～59 60～64 65～69 70～74 75～79 80～100 2004 328 2326 5328 3758 1898 765 184 39 2005 424 2203 4870 3877 2162 978 291 83 2006 335 2186 4753 3768 1948 835 240 74 2007 389 2332 5286 4001 1840 727 231 52 2008 282 1846 4183 3788 2157 831 252 38 2009 276 1962 4391 4381 2060 723 129 38 2010 323 1939 4402 4253 2208 874 206 30 2011 308 1739 4188 3947 2219 805 233 35 2012 344 1720 3956 3601 2050 808 255 41 2013 357 1949 4124 3405 1868 736 219 55 2014 353 2006 4413 3602 1885 674 249 77 Total 3719 22208 49894 42381 22295 8756 2489 562

That table shows numbers of total orders per year. These values are arranged according to the RSI value. If you look at this distribution, it's clear there are some tendency. There are many orders which RSI value is between 50 and 70. Especially orders between 55 and 65 are so many. Look at the right graph, it is for 60% of the total orders. In contrast, number of orders which RSI value is more than equals to 80 are extremely low.

And the following table shows numbers of total gain pips per year.

 0～49 50～54 55～59 60～64 65～69 70～74 75～79 80～100 2004 764.3 5800.2 7919 7027.1 679.5 593.4 -400.9 -404.2 2005 -216 -3568.6 -4410.8 -1618.8 -4894.7 -4716.3 -2671.2 -1296.5 2006 536.9 -142.4 -2695.7 522.8 74.8 -1902.7 -49 53.8 2007 51.8 517.3 6716.4 -1212.1 -1978.6 -253.9 562.4 -68.3 2008 533.7 -349 97.2 946.5 2110.2 -1532.6 -766.9 -478 2009 277 4044.9 1121 2934.4 -1401.5 1291 -1400 -19.5 2010 744.4 -592.1 -3291 -7825.3 -4076.6 -2176 -750 -184.8 2011 1546.4 1822 4877.7 -2408.2 802.7 -757.1 -1474.1 -205.2 2012 499.2 -139.2 -5428.2 -2979.9 -6822.5 -1950 423.5 239.4 2013 1061.7 2530.2 7359.4 6721.4 4050.8 1508.4 4.8 -472.9 2014 274 954.4 644.4 5208.6 2249.8 231.2 -578 -121 Total 6073.4 10877.7 12909.4 7316.5 -9206.1 -9664.6 -7099.4 -4051.2

But at this rate, it's little bit difficult to understand. So we transformed(total gain pips / number of total order) that value to average gain pips per 1 order. The table after dividing is as below.

 0～49 50～54 55～59 60～64 65～69 70～74 75～79 80～100 2004 2.33 2.49 1.49 1.87 0.36 0.78 -2.18 -10.36 2005 -0.51 -1.62 -0.91 -0.42 -2.26 -4.82 -9.18 -15.62 2006 1.6 -0.07 -0.57 0.14 0.04 -2.28 -0.2 0.73 2007 0.13 0.22 1.27 -0.3 -1.08 -0.35 2.43 -1.31 2008 1.89 -0.19 0.02 0.25 0.98 -1.84 -3.04 -12.58 2009 1 2.06 0.26 0.67 -0.68 1.79 -10.85 -0.51 2010 2.3 -0.31 -0.75 -1.84 -1.85 -2.49 -3.64 -6.16 2011 5.02 1.05 1.16 -0.61 0.36 -0.94 -6.33 -5.86 2012 1.45 -0.08 -1.37 -0.83 -3.33 -2.41 1.66 5.84 2013 2.97 1.3 1.78 1.97 2.17 2.05 0.02 -8.6 2014 0.78 0.48 0.15 1.45 1.19 0.34 -2.32 -15.78 Total 1.63 0.49 0.26 0.17 -0.41 -1.1 -2.85 -7.21
Putting it simply, most profitable RSI value is less than 50, and it gained 1.63 pips per 1 trade. Worst RSI value is more than 80, and it lost 7.21 pips per 1 trade. On the row of total in the table, you can see that numbers are lined up neatly. As you can see, the result of trade is correlate closely with RSI value. The stronger RSI-Indicator's overheat signals, the worse trading result. This sample strategy is counter type. So in other words, the RSI-Indicator's high level overheat signals suggest that there is high possibility of trend continue to expand.

Look at right graph. We did divide a previous table into 2 groups. Group A is contained the orders which RSI value is less than 65. Group B is contained the orders which RSI value is not less than 65.
You'll notice that, in this 11 years, eleven out of eleven, when RSI value was less than 65, counter strategy gained more pips than other group.

Conclusion 1:
When the RSI-Indicator was sending the oversold signal, which position do you take either Long or Short? This study’s answer is Short, sell it more!

When the RSI-Indicator was sending the overbought signal, which position do you take either Short or Long? This study’s answer is Long, buy it more!

Basically, when the RSI send the signal of overheats, we should not take a position to the direction against the price trend. Please don't misunderstanding the messages from RSI indicator. His oversold signal is not the buy signal. Overbought signal is not the sell signal.

F.Y.I.
The RSI value of the opposite point has something meaning?
*Opposite point is opposite point of the break out point. In another words, trend-start point. E.g. Upper break's opposite position is that bar which has lowest close price of last 26 bars. Downer break's opposite position is that bar which has highest close price of last 26 bars.*
The table as below is numbers of total orders per year.

 0～39 40～44 45～49 50～54 55～59 60～64 65～69 70～100 2004 419 705 1952 3823 4367 2378 738 244 2005 411 749 1826 3733 4427 2408 976 358 2006 318 673 1813 3746 3972 2317 969 331 2007 268 696 2018 4085 4299 2257 888 347 2008 340 701 1752 3468 3596 2242 944 334 2009 314 640 1992 3481 3778 2601 917 237 2010 355 771 1862 3521 4060 2406 904 356 2011 375 723 1814 3323 3624 2493 809 313 2012 265 688 1656 3364 3428 2285 845 244 2013 225 476 1748 3205 3676 2154 836 393 2014 251 714 1728 3340 3863 2135 940 288 Total 3541 7536 20161 39089 43090 25676 9766 3445

Of course these RSI values are adjusted to same direction. The RSI values of the short position (orders which was breakout the max line) is already all inverted (100-RSI value). And the following table is shown numbers of total gain pips per year.

 0～39 40～44 45～49 50～54 55～59 60～64 65～69 70～100 2004 1193.8 818.5 5259.7 6851.7 4076.3 5036.1 -368.3 -889.4 2005 -1599.6 327.5 -1042 -7957.9 -7698.9 -4295 -1242.9 115.9 2006 1042.7 1107.7 1216.5 -1978.8 -1440.7 -1663.9 -1584.9 -300.1 2007 945.9 -914.8 1636.6 3891.3 -971.6 -137.4 1387.3 -1502.3 2008 -909.1 -1425.9 2405.4 2822.2 -6736.3 2783.4 1221.7 399.7 2009 1303 -122 1138.1 -4822.4 4904 4048.2 6.9 391.5 2010 236 -1991.8 2127.1 -8338.5 -3871.3 -5513.7 1175.4 -1974.6 2011 76.4 -593.2 1879 5786.9 -1485.5 -197.8 602.7 -1864.3 2012 -0.5 -3695.7 190.3 -6880 -5084.1 -864.9 -752.3 929.5 2013 -567.4 2241.7 2299.1 8432.9 7499.8 3879.3 32.6 -1054.2 2014 379.5 227.6 2657.6 2476.3 -52.5 2277 -80.4 -115.7 Total 2100.7 -4020.4 19767.4 283.7 -10860.8 5351.3 397.8 -5864

And after transformed(total gain pips / number of total order) that value to average gain pips per 1 order is the right graph. It's shows average gain pips. Group A is contained the orders which RSI value is less than 50. Group B is contained the orders which RSI value is not less than 50. As you can see, anyway, it seems that when there aren't strong trend in the break point or the trend start point, counter strategy is better.

Divergence / Convergence

Next, we explain about trading result of divergence and convergence. What is Divergence or Convergence? Those signasl are means that the trend line of the RSI goes to the opposite direction to the trend line of the Price. That is, the situation is like this, in spite of the price trend expanding, the RSI's heat is decreasing.

E.g.
Please look at the right graphs, the first one is image of the divergence situation. the RSI value goes down against upper trend of the price. We call this situation "Divergence".
On the other hand, look at the second graph, it is image of the convergence situation, The RSI value goes up against downer trend of the price. We call this situation "Convergence".

And, the criterion of Divergence and Convergence in this study is the following situation. The Price broke out the last 26 bars highest( lowest) value, but the RSI not succeeded to break the last 26 bars highest(lowest) value.

The following table explains stats of the NoDC (no divergence or convergence signaled) orders and the DC (divergence or convergence signaled) orders.

 NoDC DC Orders Pips AVG Orders Pips AVG 2004 9532 12905 1.35 5094 9073.4 1.78 2005 9702 -18806.9 -1.94 5186 -4586 -0.88 2006 9351 -6720.4 -0.72 4788 3118.9 0.65 2007 9747 890.1 0.09 5111 3444.9 0.67 2008 9487 -812.5 -0.09 3890 1373.6 0.35 2009 9833 6937.8 0.71 4127 -90.5 -0.02 2010 9830 -15703.8 -1.6 4405 -2447.6 -0.56 2011 9569 3216.2 0.34 3905 988 0.25 2012 9079 -12598 -1.39 3696 -3559.7 -0.96 2013 9117 14252.1 1.56 3596 8511.7 2.37 2014 9346 7374.9 0.79 3913 394.5 0.1 Total 104593 -9065.5 -0.09 47711 16221.2 0.34

Look at the left graph. It's shows the both group's number of orders. Orders which with the signals are 31% of all orders. In my opinion, it was little bit bigger than I expected.

Conclusion 2:

Next, please look at the right graph. It is shows the both group's average gain pips per 1 order. On this graph, you can see that group DC is more profitable than other in long term. So when the RSI-Indicator was sending the divergence(convergence) signal, we should take a position to against the price trend direction. Simply put, the divergence is sell-signal, the convergence is buy-signal.
Conversely, If you want to follow the price trend, you should wait the situations which there aren't divergence and convergence signal at breakpoint.

F.Y.I
The RSI's diver/convergence signal of the opposite point has something meaning?
The following table shows result of the opposite point. Left block is the result of NoDC (no divergence or convergence signaled) orders, right block is the result of the DC (divergence or convergence signaled) orders.

 NoDC DC Orders Pips AVG Orders Pips AVG 2004 5435 8674.4 1.6 9191 13304 1.45 2005 5487 -8352.7 -1.52 9401 -15040.2 -1.6 2006 5130 -2899.1 -0.57 9009 -702.4 -0.08 2007 5508 -1721.4 -0.31 9350 6056.4 0.65 2008 4922 -7720.9 -1.57 8455 8282 0.98 2009 5552 1548.3 0.28 8408 5299 0.63 2010 5363 -16600.9 -3.1 8872 -1550.5 -0.17 2011 5246 -3194.1 -0.61 8228 7398.3 0.9 2012 4991 -5674.6 -1.14 7784 -10483.1 -1.35 2013 4803 7714.9 1.61 7910 15048.9 1.9 2014 5203 -1578.2 -0.3 8056 9347.6 1.16 Total 57640 -29804.3 -0.52 94664 36960 0.39

From the right graph, we can read the following things. Divergence/Convergence signal of the opposite point is make counter strategy more profitable. In other words, the signal at breakpoint suggest the force for pushing back, but that power is very temporary. We shouldn't follow the trend when the opposite point sent the signal.

So I doubt the theory like right figures!!
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