Fundamental analysis Macroeconomic indicators Trading on the news

Is Trading on Rollbacks Effective? Part 1. USA

Elena Berseneva 10 june 2022 59 2

The presented to your attention article opens a series of articles on trading on price rollbacks related to the publication of economic indicators. These articles will contain a unified analysis methodology, but the subject of consideration will be various economic indicators of the main economies of the world.

 

And we will begin this series of articles with the United States.

 

Needless to say, economic and political news is one of the catalysts for significant movement in the financial markets.

 

Even rumors about upcoming changes in these areas have an impact on financial instruments.

 

What do we mean by rollbacks, and how will our trading system be built?

 

The concepts of price correction and rollbacks have become widespread among traders. In most cases, they mean the same phenomenon, when, after a strong and prolonged price movement in one direction, a reversal occurs, and the price corrects (or rolls back) back, eating up some part of the past directional movement.

 

In most cases, they mean the same phenomenon, when, after a strong and prolonged price movement in one direction, a reversal occurs, and the price corrects (or rolls back) back, eating up some part of the past directional movement.

 

We will consider rollbacks in a narrower sense, where it is a price movement that occurred immediately after the publication of economic news and directed in the opposite direction of the meaning of this news. We can give such an example of a situation where an "athlete" takes a few steps back before a powerful leap forward. Or, as in the illustration for our article, where the archer pulls the bowstring with an arrow before firing.

 

The trading system lies in opening trades at the moments when the price rolls back before moving in the direction of the published news. Entry into the market is carried out by activating previously placed limit pending orders.

Hypothesis
To conclusion

A positive change in the newly published economic indicator compared to the value for the previous period forms a trading signal for a growth in the quote of a financial instrument. A negative change in the indicator, in turn, generates a signal to reduce the quote.


Rollback trading is profitable for US events.

К выводам

Trading strategy:

 

If the current value of the indicator is better than the previous one, then an order is placed

 

BuyLimit = Open1 – k*Open1

 

If the current value of the indicator is worse than the previous one, then an order is placed

 

SellLimit = Open1 + k*Open1

 

where k is the percentage of rollback from the opening price at the time of the publication of the Open1 indicator, k = 0,05; 0,1; 0,15; 0,2; 0,25; 0,3.

 

Closing a position:

 

1) on close 4, 8, 12, 16, 20, 32 candlesticks after entering the market;

 

2) by order TakeProfit (TP):

 

for buying:

  • ТР (1) = BuyLimit * (1 + k)
  • ТР (1,5) = BuyLimit * (1 + 1,5*k)
  • ТР (2) = BuyLimit * (1 + 2*k)
  • ТР (2,5) = BuyLimit * (1 + 2,5*k)
  • ТР (3) = BuyLimit * (1 + 3*k)


for selling:

  • ТР (1) = SellLimit * (1 - k)
  • ТР (1,5) = SellLimit * (1 - 1,5*k)
  • ТР (2) = SellLimit * (1 - 2*k)
  • ТР (2,5) = SellLimit * (1 - 2,5*k)
  • ТР (3) = SellLimit * (1 - 3*k)


If TakeProfit did not work within 8 hours after the publication of the indicator, then we close the position ourselves at the end of these 8 hours.

 

A total of 66 entry/exit combinations.

Data used

Economic calendar: MarketCheese


Timeframe: 15 minutes (M15)


Historical data: 01/01/2015 – 09/30/2020


Country USA: 53 events, including 8 important ones (detailed list is in the appendix)


5 currency pairs with USD were taken as financial instruments:

  • EURUSD
  • GBPUSD
  • USDCAD
  • USDJPY
  • AUDUSD


A total of 62,720 market entries.

We will evaluate the results according to the following criteria:


  • The average return reflects the relative change in quotations of financial instruments in percentage. A positive value of the average return indicates the profitability of the strategy, a negative one indicates a loss.

 

The average return (R) of a financial instrument is given by the formula:

where:

n - the number of transactions;

 

P (%) – the percentage of change in the quotation of the financial instrument at the time of fixing the position, is calculated as follows:

 

for buy positions

P (%) = (position closing price - position opening price) / position opening price * 100%

 

for sell positions

P (%) = (position opening price - position closing price) / position opening price * 100%




Analysis of the obtained results 


Closing a position on close 4, 8, 12, 16, 20, 32 of candlesticks after entering the market

 

Let's accept the notations for combinations of entry and exit from the market by the number of the candlestick:


Exit \ Entry
0 – pending order
4
0-4
8
0-8
12
0-12
16
0-16
20
0-20
32
0-32


Candlestick 4 - exit from the market an hour after the entry.

 

Candlestick 8 - exit from the market 2 hours after the entry, and so on.



The results are presented in diagrams:

The rate of return of the trading on rollbacks' strategy for all US events does not reach the minimum significant value of 0.09% modulo. The same applies to the group of important events. The rate of return ranges from -0.046% to 0.013%.



Let's see which of the events and at what combination of the percentage of rollback and exit from the market have shown a rate of return close to 0.09% and higher:

 

k = 0,05 %


Event
Entry - Exit
Max rate of return
Number of events
Housing Starts (MoM)
0--32
0.099
248
Housing Starts
0--32
0.088
252



k = 0,1 %


Event
Entry - Exit
Max rate of return
Number of events
Housing Starts (MoM)
0--32
0.109
196
Housing Starts
0--32
0.103
205



k = 0,15 %


Event
Entry - Exit
Max rate of return
Number of events
Housing Starts (MoM)
0--32
0.129
149
Housing Starts
0--32
0.117
162
New Home Sales (MoM)
0--32
0.092
165
Manufacturing PMI
0--32
0.086
330
GDP Price Index (QoQ)
0--20
0.085
153



k = 0,2 %


Event
Entry - Exit
Max rate of return
Number of events
New Home Sales (MoM)
0--32
0.143
129
Housing Starts (MoM)
0--32
0.124
117
Housing Starts
0--32
0.122
132
Manufacturing PMI
0--32
0.099
269
New home sales
0--32
0.097
137



k = 0,25 %


Event
Entry - Exit
Max rate of return
Number of events
New Home Sales (MoM)
0--32
0.179
102
New home sales
0--32
0.122
108
Manufacturing PMI
0--32
0.108
213



k = 0,3 %


Event
Entry - Exit
Max rate of return
Number of events
New Home Sales (MoM)
0--32
0.174
72
Manufacturing PMI
0--32
0.142
163
Durable Goods Orders (MoM)
0--20
0.108
108
New home sales
0--32
0.098
77
Consumer Credit
0--20
0.096
40


It should be noted that the strategy of trading on rollbacks and fixing a position 8 hours after entry is suitable for real estate market events in terms of new housing (highlighted in gray). At the same time, with a growth in the rollback percentage, the rate of return also increases.

 

These events are worth paying attention to.




Closing a position on a TakeProfit order

 

The Take Profit order is placed because there is a possibility that, having rolled back after the publication of the event, the price will return to the opening level.


We will evaluate the results according to three criteria:

  • The rate of return reflects the relative change in the quotations of financial instruments in percentage. A positive value of the rate of return indicates the profitability of the strategy, negative - about the loss.
  • % TP - the probability of triggering a Take Profit order, %
  • SPP - share of profitable positions, %


The average return (R) of a financial instrument is given by the formula:

where:

n - the number of transactions;

 

P (%) – the percentage of change in the quotation of the financial instrument at the time of fixing the position, is calculated as follows:

 

for buy positions

P (%) = (position closing price - position opening price) / position opening price * 100%

 

for sell positions

P (%) = (position opening price - position closing price) / position opening price * 100%



The results are presented in diagrams:

It should be noted that the best options for the rollback percentage of k are 0.1 and 0.15. With a further increase in the percentage of rollback, the rate of return practically does not change, but the probability of triggering Take Profit and DPP orders decreases.

 

As for the rollback percentage of 0.05, despite the high probability of the Take Profit order triggering and a significant share of profitable positions, it will not be considered further.

 

The reasons are:

  1.  In the economic calendar, data is reflected with a slight delay. During this time, the price has already managed to make some movement, and it is physically difficult for a trader to have time to place a limit order at a favorable price. Plus, the hype during the release of news leads to delays in reflecting these orders with the broker.
  2. The spread during the data publication period can expand significantly, which in this case significantly reduces the possible profit from the transaction. For example, for the EURUSD pair, a rollback of 0.05% is 61 points at a price of 1.22350. The calm market spread for this pair, depending on the broker, is approximately 5-10 points. During the publication of macroeconomic statistics, it can increase by 2-3 times or more. And instead of 50 points in the ideal case, the result may be, for example, 30 or less.

 

The situation is similar with Take Profit (TP) coefficients. The best of them are 1 and 1.5. With a further increase in the TP coefficient, the rate of return decreases, the probability of triggering a Take Profit order and DPP decrease too.

 

For coefficient TP = 1, the following should be noted.

 

After the publication of events, the price may roll back in the direction opposite to the economic meaning of the published events. However, within the next 8 hours, it tends to return to the opening price at the time of the publication of events. And the lower the price rollback percentage, the more likely such a result is.

 

So, we will evaluate the described strategy for a rollback percentage of 0.1 and TP coefficients of 1.5 and 2.

 

A significant rate of return for the selected parameters will be considered a rate of return of 0.04% or more.

 

The results are presented in diagrams:

Let's summarize:

 

The model of trading on rollbacks and exiting the market 8 hours after entry is suitable for real estate market events in terms of new housing:

  • Housing Starts (MoM);
  • Housing Starts;
  • New Home Sales (MoM);
  • New Home Sales.

 


The model of trading on rollbacks and exiting the market on a Take Profit order is suitable for such US events as:

 

1. Labor market events:

  • Continuing Jobless Claims;
  • Participation Rate;
  • Average Weekly Hours;
  • Unit Labor Costs (QoQ);
  • Nonfarm Payrolls;
  • Initial Jobless Claims
  • Nonfarm Productivity (QoQ).


2. Real estate market events:

  • Housing Starts (MoM);
  • Building Permits;
  • Housing Starts;
  • New Home Sales (MoM);
  • New Home Sales;
  • Pending Home Sales (MoM);
  • Building Permits (MoM).


3. Consumption and inflation events:

  • Core Durable Goods Orders (MoM);
  • Durable Goods Orders (MoM);
  • PCE Prices;
  • Core PCE Prices;
  • Core CPI (MoM);
  • Core Retail Sales (MoM);
  • Retail Control (MoM).

 


The model of trading on rollbacks and exiting the market on a Take Profit order is not suitable for the following US events that belong to the important group:

  • ISM Manufacturing PMI;
  • Retail Sales (MoM);
  • Fed Interest Rate Decision;
  • GDP (QoQ);
  • Trade Balance;
  • Unemployment rate.
Conclusion

After the publication of macroeconomic statistics, the price may roll back in the direction opposite to the economic meaning of the released events. However, during the next 8 hours, it tends to return to the opening price at the time of publication. And the lower the price rollback percentage, the more likely such a result is.


The effectiveness of rollback trading for US events has been revealed.

Detailed results are shown in the Appendix:

XLSX (0.19 MB)Trading on Rollbacks USA.xlsx



See also:

Is Trading on Rollbacks Effective? Part 2. Australia

Is Trading on Rollbacks Effective? Part 3. Eurozone

Is Trading on Rollbacks Effective? Part 4. Great Britain

Is trading on rollbacks effective? Part 5. Switzerland

Is trading on rollbacks effective? Part 6. Japan

Is Trading on Rollbacks Effective? Part 7. New Zealand

Is Trading on Rollbacks Effective? Part 8. Canada

Comments

2

Write the comment

Commenting rules
Only authorized users can leave comments. Sign in, please.
Only users with verified email can leave comments. To verify your email, click on the link in the message that has been sent to your email address . Send an email for activation again.

Subscribe to our newsletter and stay up to date with all the news!