# Is Trading on Rollbacks Effective? Part 4. Great Britain

21 June 2022 450

Previous studies trading on rollbacks have shown the usefulness of such a strategy for a number of economic events in the US, Australia and the Eurozone. Now let's see if trading on rollbacks is suitable for UK 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.

Trading on rollbacks is profitable for UK 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 candlestick 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 UK: 25 events, including 7 important ones (detailed list is in the appendix)

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

• GBPUSD
• EURGBP
• GBPJPY
• GBPAUD

A total of 22,478 market entries

#### Analysis of the obtained results

Closing a position on close 4, 8, 12, 16, 20, 32 of candlestick 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 both for all events in the UK and for a group of important events does not reach a significant value of 0.09% modulo and ranges from -0.074% to 0.025%.

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 BoE MPC vote cut 0--32 0,588 22 BoE MPC vote unchanged 0--32 0,226 77

k = 0,1 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoE MPC vote cut 0--32 0,640 22 BoE MPC vote unchanged 0--32 0,276 77

k = 0,15 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoE MPC vote cut 0--32 0,704 20 BoE MPC vote unchanged 0--32 0,321 75 GDP (QoQ) 0--32 0,088 98

k = 0,2 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoE MPC vote cut 0--32 0,723 20 BoE MPC vote unchanged 0--32 0,354 74 BoE Interest Rate Decision 0--8 0,116 24 GDP (QoQ) 0--20 0,093 84

k = 0,25 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoE MPC vote cut 0--32 0,731 19 BoE MPC vote unchanged 0--32 0,388 71 BoE Interest Rate Decision 0--8 0,158 24 GDP (QoQ) 0--20 0,101 75

k = 0,3 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoE MPC vote cut 0--32 0,618 16 BoE MPC vote unchanged 0--32 0,380 66 BoE Interest Rate Decision 0--32 0,190 24 GDP (QoQ) 0--20 0,123 60

﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿The following events have shown a significant rate of return:

• BoE MPC vote cut – at any percentage of rollback and exit from the market 8 hours after entry.
• BoE MPC vote unchanged – at any percentage of rollback and exit from the market 8 hours after entry.
• GDP (QoQ) – with a rollback percentage of 0.15 and exit from the market 8 hours after entry, and with a rollback percentage of 0.2 and exit from the market 5 hours after entry.
• BoE Interest Rate Decision – with a rollback percentage of 0.2 and 0.25 and exiting the market 2 hours after entry, as well as with a rollback percentage of 0.3 and exiting the market 8 hours after entry.

At the same time, in most cases, 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 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.

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 UK events also confirm these findings.

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

Let's see for which of the events in the UK 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 events:

• BoE MPC vote cut;
• BoE MPC vote unchanged;
• GDP (QoQ) with a rollback percentage of 0.15;
• BoE Interest Rate Decision with a rollback percentage of 0.3.

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

•  GDP (QoQ) with a rollback percentage of 0.2.

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

•  BoE Interest Rate Decision with a rollback percentage of 0.2 and 0.25.

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

1. Decisions of the Central Bank:

• BoE Interest Rate Decision;
• BoE QE Total;
• BoE MPC vote cut.

• Construction PMI.

4. GDP and Industrial production:

• GDP (QoQ);
• GDP (YoY);
• Industrial Production (MoM);
• Manufacturing Production (MoM).

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

• Retail Sales (MoM) in the UK;
• Manufacturing PMI;
• Unemployment Rate in the UK;
• GDP (MoM);
• CPI (YoY);
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 events in the UK has been revealed.

﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿﻿Detailed results are shown in the Appendix:

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