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

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.

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 1^st 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 20^th candlestick),

8 hours (the 32^nd candlestick).

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

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:

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:

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:

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).

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