Fundamental analysis Macroeconomic indicators Trading on the news

Is Trading on Rollbacks Effective? Part 7. New Zealand

Elena Berseneva 24 june 2022 11

Previous studies of rollback trading have revealed the usefulness of this strategy for a number of economic events in six countries. Let's see if trading on rollbacks is suitable for New Zealand 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 New Zealand 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 New Zealand: 18 events, including 7 important ones (detailed list is in the appendix)


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

  • NZDUSD
  • EURNZD
  • NZDCAD
  • NZDJPY
  • AUDNZD


A total of 8,308 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 New Zealand does not reach a significant value of 0.09% modulo with rollback of 0.25% and exit from the market 8 hours after entry. 

 

In the group of important events, a significant rate of return has been noted for any percentage of rollback and exit from the market 8 hours after entry, as well as for a small rollback of 0.05% and exit from the market 5 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 = 0,05 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
GDP (YoY)
0--20
0,283
55
RBNZ Interest Rate Decision
0--32
0,238
26
CPI (YoY)
0--20
0,212
47
GDP (QoQ)
0--32
0,190
61
Unemployment Rate
0--32
0,141
60
NZIER Business Confidence (QoQ)
0--32
0,114
59
Retail Sales (QoQ)
0--20
0,113
44
Employment Change (QoQ)
0--32
0,102
59



k = 0,1 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
GDP (YoY)
0--20
0,305
44
CPI (YoY)
0--20
0,181
35
GDP (QoQ)
0--20
0,173
50
NZIER Business Confidence (QoQ)
0--32
0,169
47
Unemployment Rate
0--32
0,142
50
Retail Sales (QoQ)
0--32
0,127
38
Employment Change (QoQ)
0--32
0,107
52
Electronic Card Retail Sales (MoM)
0--32
0,087
150



k = 0,15 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
GDP (YoY)
0--20
0,401
38
GDP (QoQ)
0--20
0,249
45
NZIER Business Confidence (QoQ)
0--32
0,246
39
Unemployment Rate
0--32
0,204
43
CPI (YoY)
0--20
0,198
31
Employment Change (QoQ)
0--32
0,154
44
Electronic Card Retail Sales (MoM)
0--32
0,149
125



k = 0,2 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
GDP (YoY)
0--20
0,431
28
GDP (QoQ)
0--16
0,230
41
Unemployment Rate
0--32
0,195
31
NZIER Business Confidence (QoQ)
0--32
0,182
29
Electronic Card Retail Sales (MoM)
0--32
0,179
105
Employment Change (QoQ)
0--32
0,161
36
CPI (YoY)
0--32
0,121
24
Business NZ PMI
0--20
0,101
78



k = 0,25 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
GDP (YoY)
0--20
0,541
24
GDP (QoQ)
0--20
0,301
39
NZIER Business Confidence (QoQ)
0--32
0,228
24
Electronic Card Retail Sales (MoM)
0--32
0,213
86
Business NZ PMI
0--32
0,174
65
Unemployment Rate
0--16
0,171
24
Employment Change (QoQ)
0--32
0,129
32
CPI (YoY)
0--32
0,107
22



k = 0,3 %


Event
The best Entry - Exit
Rate of return of the best Entry - Exit
Number of entries
NZIER Business Confidence (QoQ)
0--32
0,256
21
Electronic Card Retail Sales (MoM)
0--32
0,189
76
GDP (QoQ)
0--16
0,133
34
Employment Change (QoQ)
0--32
0,121
25
Westpac Consumer Sentiment
0--32
0,100
18
Business NZ PMI
0--32
0,092
40
CPI (YoY)
0--4
0,091
18


The following events have shown a significant rate of return:

  • GDP (YoY) – with a rollback percentage from 0.05 to 0.25 and exit from the market 5 hours after entry.
  • GDP (QoQ)with a rollback percentage of 0.05 and exit from the market 8 hours after entry; with rollback percentages of 0.1, 0.15 and 0.25 and exit from the market 5 hours after entry; with a rollback percentage of 0.2 and 0.3 and exit from the market 4 hours after entry.
  • RBNZ Interest Rate Decision – only with a small rollback percentage of 0.05 and exit from the market 8 hours after entry.
  • CPI (YoY) – with a rollback percentage of up to 0.15 and exit from the market 5 hours after entry; with a rollback percentage of 0.2 and 0.25 and exit from the market 8 hours after entry; and with a rollback percentage of 0.3 and exit from the market 1 hour after entry.
  • Unemployment Rate – with a rollback percentage of up to 0.2 and exiting the market 8 hours after entry, as well as with a rollback percentage of 0.25 and exiting the market 4 hours after entry.
  • Employment Change (QoQ) – for any rollback and exit from the market 8 hours after entry.
  • NZIER Business Confidence (QoQ) – for any rollback and exit from the market 8 hours after entry.
  • Retail Sales (QoQ) – with a rollback percentage of 0.05 and exit from the market 5 hours after entry; with a rollback percentage of 0.1 and exit from the market 8 hours after entry.
  • Electronic Card Retail Sales (MoM) – with a rollback percentage of 0.1 and exit from the market 8 hours after entry.
  • Business NZ PMI – with a rollback percentage of 0.2 and exit from the market 5 hours after entry; with a rollback percentage of 0.25 and 0.3 and exit from the market 8 hours after entry.
  • Westpac Consumer Sentiment – with a rollback percentage of 0.3 and exit from 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 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:

Recall that 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 New Zealand also 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 New Zealand 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:

  • RBNZ Interest Rate Decision;
  • GDP (QoQ);
  • Unemployment Rate;
  • NZIER Business Confidence (QoQ);
  • Employment Change (QoQ);
  • Retail Sales (QoQ);
  • Electronic Card Retail Sales (MoM);
  • CPI (YoY);
  • Business NZ PMI;
  • Westpac Consumer Sentiment.

 

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

  • GDP (YoY);
  • CPI (YoY);
  • Retail Sales (QoQ);
  • GDP (QoQ);
  • Business NZ PMI.

 

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

  • GDP (QoQ);
  • Unemployment Rate in New Zealand.

 

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

  • CPI (YoY).



 

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

 

1. Important events:

  • RBNZ Interest Rate Decision;
  • NZIER Business Confidence (QoQ);
  • Employment Change in New Zealand (QoQ);
  • CPI in New Zealand (YoY);
  • Retail Sales in New Zealand (QoQ).


2. Business and labor market:

  • Business NZ PMI;
  • NZIER Business Confidence (QoQ);
  • Unemployment Rate in New Zealand;
  • Employment Change in New Zealand (QoQ);
  • Participation Rate.


3. Consumption and inflation:

  • Electronic Card Retail Sales (YoY);
  • CPI in New Zealand (YoY);
  • Retail Sales in New Zealand (QoQ)


4. Balance and GDP:

  • GDP (YoY).



 

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

  • GDP of New Zealand (QoQ);
  • Trade Balance (MoM).
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 New Zealand has been revealed.

Detailed results are shown in the Appendix:

XLSX (0.13 MB)Trading on Rollbacks New Zealand.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 6. Japan

Is Trading on Rollbacks Effective? Part 8. Canada

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