Fundamental analysis Macroeconomic indicators Trading on the news

Is Trading on Rollbacks Effective? Part 2. Australia

Elena Berseneva 10 June 2022 206

The first part of the study of rollback trading has revealed the usefulness of this strategy for a number of US economic events. Now let's examine whether trading on rollbacks is suitable for Australian events.

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.


A trading on rollbacks is profitable for Australia’ events.

К выводам

Recall the trading strategy:

 

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

 

BuyLimit = Open1 – k*Open1

 

If the current value of the indicator is less 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.

 

We wait for 8 hours. If the pending order has not worked, we cancel it.


 

Closing a position:

 

1) on close 4, 8, 12, 16, 20, 32 of 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 has not worked 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 Australia: 21 events, including 6 important ones (detailed list is in the appendix)


5 currency pairs with AUD have been taken as financial instruments:

  • AUDUSD
  • GBPAUD
  • AUDCAD
  • AUDJPY
  • EURAUD


A total of 14,863 market entries

Having defined all the conditions and set the necessary parameters, let's start testing!



Analysis of the obtained results 

 

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

 

We will evaluate the results according to the following 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.


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 rollback trading strategy for all events in Australia does not reach the minimum significant value of 0.09% modulo.

 

In the important events group, for any percentage of rollback, the rate of return is below -0.09% when closing the position after 3 hours or more. This happens due to such events as the Reserve Bank of Australia interest rate decision, Trimmed Mean CPI (QoQ), Australia employment change.

 

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
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Unemployment rate 
0--32
0,094
149
Trimmed Mean CPI (YoY)
0--20
0,088
28



k = 0,1 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Trimmed Mean CPI (YoY)
0--20
0,118
22
Unemployment rate
0--32
0,095
133
Westpac consumer sentiment 
0--20
0,086
203



k = 0,15 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Trimmed Mean CPI (YoY)
0--20
0,144
18
Unemployment rate
0--32
0,108
121
Westpac consumer sentiment
0--16
0,107
168



k = 0,2 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Westpac consumer sentiment
0--16
0,126
130
RBA Interest Rate Decision
0--8
0,122
28
Unemployment rate
0--32
0,103
102
NAB Quarterly Business Confidence
0--32
0,089
55



k = 0,25 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
RBA Interest Rate Decision
0--8
0,174
25
NAB Quarterly Business Confidence
0--32
0,139
50
Westpac consumer sentiment 
0--16
0,139
103
Unemployment rate
0--32
0,135
89
HIA New Home Sales (MoM)
0--32
0,118
122



k = 0,3 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
RBA Interest Rate Decision
0--8
0,209
23
HIA New Home Sales (MoM)
0--32
0,152
96
Unemployment rate
0--32
0,142
76
NAB Quarterly Business Confidence
0--32
0,121
43
Westpac consumer sentiment
0--16
0,113
79



The following events have shown a significant rate of return:

  • Unemployment Rate in Australia – at any percentage of rollback and exit from the market 8 hours after entry. At the same time, with a rollback percentage growth, the rate of return increases.
  • Trimmed Mean CPI (YoY) – with a small rollback percentage (up to 0.15%) and exit from the market in 5 hours. And as the percentage of rollback increases, the rate of return also increases.
  • Westpac Consumer Sentiment Index – with a 0.1 rollback percentage and exit the market in 5 hours, and with a 0.15% to 0.3% rollback percentage and exit the market in 4 hours.
  • RBA Interest Rate Decision with a rollback percentage from 0.2% to 0.3% and exit from the market in 2 hours.
  • NAB Quarterly Business Confidence – with a rollback percentage of 0.2% to 0.3% and an exit from the market in 8 hours.
  • HIA New Home Sales (MoM) – with a rollback percentage of 0.25% to 0.3% and an exit from the market in 8 hours.

 

These events are worth paying attention to.

 



Closing a position on a TakeProfit order

 

The Take Profit orders are 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 results are presented in diagrams:

 

In the first part of our study of trading on rollbacks when exiting the market on a TakeProfit order, we have settled on a rollback percentage of k = 0.1 and Take Profit coefficients: TP = 1.5 and TP = 2.

 

Recall that the rollback percentage of 0.1% has been chosen due to higher rate of return, the probability of triggering Take Profit orders and the share of profitable positions.

 

Similarly, Take Profit (TP) coefficients equal to 1.5 and 2 have been chosen.

 

The rollback percentage of 0.05 has been excluded from consideration due to the widening spread at the time of the publication of events, the delay in reflecting data in the economic calendar, and, as a result, the low rate of return of the strategy.

 

For the coefficient TP = 1, the following has been observed.

 

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.

 

The results for the Australian events confirm these findings.

 

A significant rate of return for the selected parameters, as well as for US events, will be considered a rate of return of 0.04% or more.

 

Let's see for which of the events in Australia the effectiveness of rollback trading has been identified.

Let's summarize.


The model of trading on rollbacks and exiting the market 8 hours after entry is suitable for the following Australian events:

  • Unemployment rate;
  • NAB Quarterly Business Confidence;
  • HIA New Home Sales (MoM).

 

The model of trading on rollbacks and exiting the market 5 hours after entry is suitable for: 

  • Trimmed Mean CPI (YoY).

 

The model of trading on rollbacks and exiting the market 4 hours after entry is suitable for:

  • Westpac Consumer Sentiment Index.

 

The model of trading on rollbacks and exiting the market 2 hours after entry is suitable for:

  • RBA Interest Rate Decision.

 


The model of trading on rollbacks and exiting the market on a Take Profit order is suitable for the following Australian events:

 

1. Events in real estate and labor markets:

  • HIA New Home Sales (MoM);
  • Unemployment rate.


2. Business and confidence group events:

  • AIG Manufacturing Index;
  • Westpac Consumer Sentiment Index.

 

3. Consumption and inflation group events:

  • Trimmed Mean CPI (YoY);
  • Trimmed Mean CPI (QoQ).

 

The model of trading on rollbacks and exiting the market on a Take Profit order is not suitable for the following events in Australia, which belong to the group of important ones:

 

  • RBA Interest Rate Decision;
  • Retail sales in Australia (MoM);
  • Trade balance;
  • AIG Manufacturing Index;
  • Employment change;
  • GDP (QoQ).
Conclusion

After the publication of events, the price may roll back in the direction opposite to the economic meaning of the published events. However, during 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.


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

Detailed results are shown in the Appendix:

XLSX (0.13 MB)Trading on Rollbacks Australia.xlsx



See also:

Is Trading on Rollbacks Effective? Part 1. USA

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

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