Saturday 11 May 2024

End of Initial Tests of Trading Forex News Announcements

Following on from my previous post I have completed the same tests as outlined in that post on other currencies and the summary results are:

  • USD - an average of 0.38% return per trade
  • EUR - an average of 0.22% return per trade
  • GBP - an average of 0.77% return per trade
  • CHF - an average of 2.05% return per trade
  • JPY - an average of 0.18% return per trade
  • AUD - an average of 1.01% return per trade

Since these seem to be profitable across the board I deem it is worthwhile to continue investigating some sort of news trading system. However, that said, there is a huge caveat regarding fills which has recently been pointed out by Terberh Strategy in a comment to the previous post, namely the withdrawal of liquidity immediately prior to these news releases. I am not yet sure how I can account for this in future testing, and it may be that this lack of liquidity could in fact make it almost impossible to accurately test any such system without making some consequential assumptions.
 

2 comments:

Oliver said...

You can use tick or trade data to simulate more accurate fills, and failing that, use OHLC, simulating entry with a limit order, assuming a fill if the H/L exceeds the limit entry price by more than one tick
If you don’t simulate a scenario which is accurately backtestable with the data that you have, then I suggest you alter your strategy (execution) rules, or factor in wide slippage appropriately (preferably the former, because just in the same way that avoiding overhead and look ahead bias is easier said than done, so too is underestimating real life slippage, which can manifest itself for a whole host of reasons)

Dekalog said...

Thanks for your comment Oliver. As you suggested, I am now working with finer grained data to account for the possible effects of slippage. I will post more about this in due course.

I also note your correction - "avoiding over fitting" rather than "avoiding overhead."