Fundamental analysis Macroeconomic indicators Trading on the news

Is Trading on Rollbacks Effective? Part 6. Japan

Elena Berseneva 23 june 2022 97

Previous studies of rollback trading have revealed the usefulness of this strategy for a number of economic events in five countries. Let's see if trading on rollbacks is suitable for Japan 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 Japan 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 Japan: 8 events, including 2 important ones (detailed list is in the appendix)


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

  • AUDJPY
  • EURJPY
  • GBPJPY
  • CADJPY
  • USDJPY


A total of 6,749 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 average percentage of changes in the quotations of financial instruments at the time of closing positions 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 Japan does not reach a significant value of 0.09% modulo. In the group of important events, a significant rate of return has been noted with rollbacks of 0.25% and 0.3% and exit from the market 2 hours after entry.

 


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 = 0,1%


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Unemployment Rate
0--16
0,097
148



k = 0,15%


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Unemployment Rate
0--32
0,110
122



k = 0,2%


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Unemployment Rate
0--32
0,170
100
Tokyo Core CPI (YoY)
0--8
0,090
114



k = 0,25%


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Unemployment Rate
0--32
0,198
85
Tokyo Core CPI (YoY)
0--8
0,122
96
Jobs/applications ratio
0--32
0,085
96



k = 0,3 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
Unemployment Rate
0--32
0,203
67
Tokyo Core CPI (YoY)
0--8
0,120
75
Jobs/applications ratio
0--32
0,088
86


The following events have shown a significant rate of return:

  • Unemployment Rate in Japan. For small rollbacks of 0.1%, it is better to hold the position for 4 hours. With rollbacks of 0.15% or more, it is better to hold the position longer, namely 8 hours.
  • Tokyo Core CPI (YoY). This indicator has proved itself with rollbacks from 0.2% and exit from the market 2 hours after entry.
  • Jobs/applications ratio – with rollbacks of 0.25% and 0.3% and exit from the market 8 hours after entry.


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 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 average percentage of changes in the quotations of financial instruments at the time of closing positions 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 of events in Japan confirm these findings.

 

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

 

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

  • Unemployment Rate in Japan;
  • Jobs/applications ratio.

 

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

  • Unemployment Rate in Japan with a rollback of 0.1%.

 

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

  • Tokyo Core CPI (YoY).

 


The model of trading on rollbacks and exiting the market on a Take Profit order is suitable for the following event in Japan:

  •  National Core CPI (YoY).


 

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

  • Jobs/applications ratio;
  • Tokyo Core 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 Japan has been revealed.

Detailed results are shown in the Appendix:

XLSX (0.11 MB)Trading on Rollbacks Japan.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 4. Great Britain

Is trading on rollbacks effective? Part 5. Switzerland

Is Trading on Rollbacks Effective? Part 7. New Zealand

Is Trading on Rollbacks Effective? Part 8. Canada

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