25 June 2022 534

Previous studies of rollback trading have revealed the usefulness of this strategy for a number of economic events in seven countries. Let's see if trading on rollbacks is suitable for Canada 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.

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 Canada: 14 events, including 7 important ones (detailed list is in the appendix)

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

A total of 12,949 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 both for all events in Canada and for a group of important events does not reach a significant value of 0.09% modulo and ranges from -0.039% to 0.037%.

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 BoC Interest Rate Decision 0--4 0,175 19

k = 0,1 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoC Interest Rate Decision 0--4 0,198 17

k = 0,15 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoC Interest Rate Decision 0--4 0,201 16

k = 0,2 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoC Interest Rate Decision 0--32 0,199 15

k = 0,25 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoC Interest Rate Decision 0--32 0,213 15 Ivey PMI 0--32 0,091 121

k = 0,3 %

 Event The best Entry - Exit Rate of return of the best Entry - Exit Number of entries BoC Interest Rate Decision 0--32 0,324 15 Ivey PMI 0--32 0,099 98

The following events have shown a significant rate of return:

• BoC Interest Rate Decision. With a small rollback percentage up to 0.15, it is better to hold the position for an hour after entering the market. With rollbacks of 0.2% or more, it is better to exit the market 8 hours after entering.
• Ivey PMIwith rollbacks of 0.25% and 0.3% and exit from the market 8 hours after entry.

It should be noted that 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 Canada 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 Canada 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:

• BoC Interest Rate Decision with rollbacks from 0.2%;
• Ivey PMI with rollbacks of 0.25% and 0.3%.

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

• BoC Interest Rate Decision with rollbacks up to 0.15%.

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

1. Important events:

• BoC Interest Rate Decision;
• Ivey PMI.

2. Consumption and inflation

• Canada BoC Consumer Price Index (CPI) Core (YoY).

3. Labor market:

• Participation Rate;
• Unemployment Rate.

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

• Canada BoC Consumer Price Index (CPI) Core (MoM);
• Employment Change;
• Core Retail Sales (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 Canada has been revealed.

The effectiveness of trading on rollbacks has been revealed for a number of events in each of the eight countries we have examined.

Detailed results are shown in the Appendix:

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