Does the Trading Signal Work Based on the Forecast Value?
28 June 2022
In this article, we will talk about the economic calendar and determine what is better to rely on when making a decision to open deals: forecasts or previous values of indicators.
The economic calendar is an important source of information for a trader. Updating the calendar data affects the actions of many market participants.
Today, the economic calendar is present in the arsenal of every broker. It can also be found in independent sources.
Usually, the economic calendar reflects the figures of the previous period, forecasts and current values of macroeconomic indicators.
At the time of publication, the following scenarios are possible:
1. Comparison of the current values of the published indicators with the previous ones:
- coincidence of current data with previous ones;
- current data are better than previous ones;
- current data are worse than previous ones.
2. Comparison of the current values of the published indicators with the forecast ones:
- coincidence with the forecast;
- the situation has turned out to be better than the forecast;
- the situation has turned out to be worse than the forecast.
Let's compare these two approaches and determine which one is more profitable.
The rate of return of transactions based on a signal obtained by comparing the forecast and actual value is higher than the rate of return of a signal obtained by comparing the new actual value with the previous actual value.
Trading strategy:
- enter the market after the publication of the event (news) on 15-minute candlesticks according to the supposed reaction of the instrument to the event (for more details, see the appendix):
- 0 (candlestick 0, the moment of the event publication),
- 15 minutes (candlestick 1),
- 1 hour (candlestick 4),
- 2 hours (candlestick 8).
- exit from the market on close of candlestick from the list below after entering:
- 1 hour (candlestick 4),
- 2 hours (candlestick 8),
- 3 hours (candlestick 12),
- 4 hours (candlestick 16),
- 5 hours (candlestick 20),
- 8 hours (candlestick 32).
Let’s assess the described strategy for two approaches of published indicators' comparison: current with forecast and current with previous ones.
A total of 48 entry/exit combinations.
Economic calendar: MarketCheese
Timeframe: 15 minutes (M15)
Historical data: 01/01/2015 – 09/30/2020
Economic events of eight countries:
- The USA: 51 events
- Australia: 16 events
- The Eurozone: 21 events
- The UK: 26 events
- Switzerland: 9 events
- Japan: 9 events
- New Zealand: 16 events
- Canada: 14 events.
Financial instruments: 5 currency pairs each with USD, AUD, EUR, GBP, CAD, NZD, CHF, JPY.
A total of 80,735 market entries.
The following currency pairs by country have been taken for the study:
USA | Australia | Eurozone | UK | Canada | New Zealand | Switzerland | Japan |
EURUSD | EURAUD | EURUSD | EURGBP | USDCAD | NZDUSD | USDCHF | USDJPY |
GBPUSD | GBPAUD | EURGBP | GBPUSD | GBPCAD | EURNZD | EURCHF | EURJPY |
AUDUSD | AUDUSD | EURCAD | GBPCAD | AUDCAD | NZDJPY | GBPCHF | AUDJPY |
USDJPY | AUDJPY | EURJPY | GBPJPY | CADJPY | AUDNZD | AUDCHF | GBPJPY |
USDCAD | AUDCAD | EURAUD | GBPAUD | EURCAD | NZDCAD | NZDCHF | CADJPY |
Analysis of the obtained results
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.
The rate of return (D) of a financial instrument is calculated using the formula:
where:
n - the number of transactions;
P (%) – the percentage increment of the quotation of a financial instrument at the time of position fixation, is calculated as follows:
for buy positions
P (%) = (position closing price - position opening price) / position opening price * 100%
for sell positions
P (%) = (position opening price - position closing price) / position opening price * 100%
Let's take the notations:
1. The market entry/exit combination by candlestick number.
Exit \ Entry | 0 | 1 | 4 | 8 |
4 | 0-4 | 1-4 | 4-4 | 8-4 |
8 | 0-8 | 1-8 | 4-8 | 8-8 |
12 | 0-12 | 1-12 | 4-12 | 8-12 |
16 | 0-16 | 1-16 | 4-16 | 8-16 |
20 | 0-20 | 1-20 | 4-20 | 8-20 |
32 | 0-32 | 1-32 | 4-32 | 8-32 |
2. Current / Previous - a method of comparing current values with previous ones.
3. Current / Forecast - a method of comparing current values with forecast values.
The results are presented in diagrams.
It should be noted that not always and not for all events, forecast values are published before the release of news.
At the same time, for events for which a forecast value is published, it is possible to increase the profitability of the strategy by entering the market at the time of publication and exiting 1, 2, 3, 4, 5, 8 hours after the entry.
The method of comparing current values of economic indicators with forecasts is better suited for events in Australia, New Zealand and Canada. Due to market entries based on forecasts, the average rate of return of these countries’ events reaches and exceeds the value of 0.1%.
The effectiveness of the signal based on the forecast value has been revealed for entering the market at the time of the event publication.
Detailed results are shown in the Appendix:
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