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Fundamental analysis Trading on the news

A News Trading Strategy: Is the Way to Increase the Deposit Open? Part 2

Елена Берсенева 28 march 2022 114 4

In the first part of our study based on news-based trading, the strategy of entering the market within 2 hours after the release was considered, and exiting the market within 8 hours after the entry for the USA and Australian events.

 

In this study, the same strategy will be considered but for the Eurozone and the UK events.

Hypothesis
To conclusion

Positive changes in the newly published economic indicator compared with a value for the previous period, forms a trading signal for growth of the financial instrument quote. A negative change in the indicator in turn forms a signal to the decline of a quote.


A market entry within 2 hours since such a trading signal appears and with the market exit within 8 hours after the entry is profitable.

To conclusion

Let us remind the trading strategy:

 

- enter the market after the event release (the news) on the 15-minutes candlesticks according to the expected reaction of the instrument to the event (for more information, see the appendix):

  • 0 (the 0th candlestick, the moment of the event publication),
  • 15 minutes (the 1st candlestick),
  • 1 hour (the 4 th candlestick),
  • 2 часа hours (the 8 th candlestick).

 

- leave the market on the candlestick close from the list below after the entry:

1 hour (the 4 th  candlestick),

2 hours (the 8 th candlestick),

3 hours (the 12 th  candlestick),

4 hours (the 16 th  candlestick),

5 hours (the 20th candlestick),

8 hours (the 32nd candlestick).

 

There are 24 entry/exit combinations in total. Also, the best/worst entry/exit will be determined for every event. 

Data used

Economic Calendar: MarketCheese


Timeframe: 15 minutes (М15)


Historical data: 01.01.2015 – 30.09.2020


Eurozone: 22 events including 3 crucial ones (the detailed list is shown in the Appendix)


The United Kingdom: 28 events including 7 crucial ones (the detailed list is shown in the Appendix)


As for financial instruments, 5 EUR currency pairs and 5 GBP currency pairs are taken:

  • EURUSD
  • EURGBP
  • EURCAD
  • EURJPY
  • EURAUD


  • EURGBP
  • GBPUSD
  • GBPCAD
  • GBPJPY
  • GBPAUD


Total: 12 230 market entries.

Having determined all the conditions and set all the necessary parameters, let’s start testing.

 


Analysis of the Results

 

We will assess the results with the following criterion:

 

  • Rate of return reflects relative changes in quotes of financial instruments, in %. A positive value of the rate of return indicates the profitability of a signal handling. A negative value of the rate of return indicates a loss.  


A rate of return (D) of a financial instrument is calculated by the following formula:

 

D = Σ P(%) / n,

 

where:


n, the number of deals;


P (%) is a percentage increment of the financial instrument quote at the moment of fixing a position which is calculated the following way:


for buy positions

P (%) = (the price for closing a position – the price for opening a position) / the price for opening a position * 100%


for sell positions

P (%) = (the price for opening a position – the price for closing a position) / the price for opening a position * 100%

 


Let’s take the following notations for the entry-exit combinations with the candlestick number:


Exit Entry
0
1
4
8
4
0-4
1-4
4-4
8-4
8
0-8
1-8
4-8
8-8
12
0-12
1-12
4-12
8-12
16
0-16
1-16
4-16
8-16
20
0-20
1-20
4-20
8-20
32
0-32
1-32
4-32
8-32



The results are shown in the charts:

Let's see which events and entry-exit combinations show a significant rate of return close to 0.1% and higher:


Eurozone Event
Best Entry - Exit
Rate of return of the best Entry - Exit
Number of events
Eurozone Interest Rate Decision
0--4
0.828
5


UK Event
Best Entry -Exit
Rate of return of the best Entry - Exit
Number of events
U.K. BoE MPC Vote Cut
0--32
0.493
25
0--16
0.255
5
UK BoE QE Total
0--8
0.224
20
U.K. GfK Consumer Confidence
4--32
0.162
5
GDP (QoQ)
0--32
0.157
165
U.K. Industrial Production YoY
0--12
0.139
285
BOE MPC Vote Hike
0--8
0.122
55
U.K. Manufacturing Production MoM
0--16
0.111
300
U.K. Interest Rate Decision
4--4
0.111
25
U.K. Unemployment Rate
0--16
0.110
150


These events are worth taking into consideration.

 


Let's see which events and entry-exit combinations show a significant rate of return close to -0.1% and lower:


Eurozone Event
Worst Entry - Exit
Rate of return of the worst Entry - Exit
Number of events
Eurozone Interest Rate Decision
4--16
-3.101
5
Euro Zone Deposit Facility Rate
1--32
-2.070
15
Eurozone Labor Cost Index YoY
4--32
-0.086
110


UK Event
Worst Entry - Exit
Rate of return of the worst Entry - Exit
Number of events
U.K. BRC Retail Sales Monitor YoY
8--32
-0.394
5
U.K. Interest Rate Decision
0--16
-0.313
25
U.K. Interest Rate Decision
8--12
-0.223
20
U.K. BoE MPC Vote Unchanged
1--32
-0.219
90
BOE MPC Vote Hike
1--16
-0.118
55
U.K. GfK Consumer Confidence
8--8
-0.114
5
U.K. Unemployment Rate
4--32
-0.088
150
U.K. Core Retail Sales YoY
1--20
-0.086
315


These events are also worth taking into consideration but with the aim of working on them in the opposite direction.

 

It should be noted that the Eurozone event "Eurozone Interest Rate Decision" and the UK event “U.K. BRC Retail Sales Monitor YoY", "U.K. Interest Rate Decision", "UK BoE QE Total", "BOE MPC Vote Hike", "U.K. GfK Consumer Confidence", "U.K. Unemployment Rate" are found in both tables: events with rates of return close to 0.1% and higher, and to -0.1% and lower.

 

These events excluding UK events such as “U.K. GfK Consumer Confidence” and  “U.K. Interest Rate Decision” are united by the fact that a significant positive rate of return is achieved with entering the market at the event publication and exiting the market at latest 4 hours after entry (for "Eurozone Interest Rate Decision " at latest an hour after the entry). Further, the rate of return decreases to a significant negative value and lower.

 

For the UK events: "U.K. GfK Consumer Confidence" and "U.K. Interest Rate Decision" a significant positive rate of return is achieved with entering the market within 2 hours after the event publication and exiting the market at latest 8 hours after the entry.



Let’s make the following conclusions.

 

Events in the Eurozone

 

The lowest rate of return of -0.223% of the trading strategy based on the Eurozone news was noted with entering the market within 15 minutes after the event publication and exiting within 5 hours after the entry.

 

For the crucial Eurozone events, the highest rate of return of 0.279% is marked with the entry-exit combination of 0—4; the lowest rate of return is -1.018% with the entry-exit combination of 4--16.

 

The significant values of the rate of return modulo all the events and a group of important Eurozone events were achieved due to the two events: "Eurozone Interest Rate Decision" and "Euro Zone Deposit Facility Rate".

 

Otherwise, the rate of return is low and does not reach the minimum significant value of 0.1% modulo.

 

  

Events in the United Kingdom

 

The rate of return of the trading strategy based on all the UK news does not reach the minimum significant value of 0.1% modulo. The same applies to a group of the important events. The rate of return ranges between -0.041% and 0.045%.

 


The strategy of entering the market within 2 hours after the publication and exiting the market within 8 hours after the entry is revealed for the following Eurozone and UK events:

 

1. Eurozone:

  • Eurozone Interest Rate Decision (entry--exit: 0--4);
  • Eurozone Interest Rate Decision (working in the opposite direction, entry--exit: 4-‑16);
  • Euro Zone Deposit Facility Rate (working in the opposite direction, entry--exit: 1-‑32);
  • Eurozone Labor Cost Index YoY (working in the opposite direction, entry--exit: 4-‑32);

 

2. United Kingdom:

  • GDP (QoQ) (entry--exit: 0--32);
  • U.K. GfK Consumer Confidence (entry--exit: 4--32);
  • U.K. BRC Retail Sales Monitor YoY (entry--exit: 0--16);
  • U.K. Manufacturing Production MoM (entry--exit: 0--16);
  • U.K. Industrial Production MoM (entry--exit: 0--12);
  • U.K. Interest Rate Decision (entry--exit: 4--4);
  • UK BoE QE Total (entry--exit: 0--8);
  • U.K. BoE MPC Vote Cut (entry--exit: 0--32);
  • BOE MPC Vote Hike (entry--exit: 0--8);
  • U.K. Unemployment Rate (entry--exit: 0--16);
  • U.K. Core Retail Sales YoY (working in the opposite direction, entry--exit: 1--20);
  • U.K. GfK Consumer Confidence (working in the opposite direction, entry--exit: 8-‑8);
  • U.K. BRC Retail Sales Monitor YoY (working in the opposite direction, entry--exit: 8--32);
  • U.K. Interest Rate Decision (working in the opposite direction, entry--exit: 0--16);
  • UK BoE QE Total (working in the opposite direction, entry--exit: 8--12);
  • U.K. BoE MPC Vote Unchanged (working in the opposite direction, entry--exit: 1--32);
  • BOE MPC Vote Hike (working in the opposite direction, entry--exit: 1--16);
  • U.K. Unemployment Rate (working in the opposite direction entry--exit: 4--32).
Conclusion

The effectiveness of a news-based trading with the market entry within 2 hours after a release and with the market exit within 3 hours after an entry for the Eurozone and the U.K. events has been identified.

Detailed results are shown in the Appendix:

XLSX (0.08 MB)Applicationa to the article 'Trading on news – is the path to deposit growth open_Part 2'.xlsx

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