# Is Trading on Rollbacks Effective? Part 2. Australia

10 June 2022 455

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

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.

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

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):

• 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
• 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;
• 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);
• 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:

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