Fundamental analysis Macroeconomic indicators Trading on the news

Is Trading on Rollbacks Effective? Part 4. Great Britain

Elena Berseneva 21 june 2022 24

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
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.


Trading on rollbacks is profitable for UK events.

To conclusion

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 candlestick 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 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
  • GBPCAD
  • 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.

 

2. Business activity:

  • 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);
  • Trade Balance.
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:

XLSX (0.15 MB)Trading on Rollbacks UK.xlsx



See also:

Is trading on rollbacks effective? Part 1. USA

Is trading on rollbacks effective? Part 2. Australia

Is trading on rollbacks effective? Part 3. Eurozone

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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