Promising Results from Automated FX Trading Strategy using Country Sentiment Factors

By Pavel Chigirev, Deltix Quantitative Research Team

Introduction

This paper describes an implementation of an automated quantitative FX trading strategy based on country sentiment factors, and the results from back-testing this strategy. The country sentiment factors and strategy description are provided by RavenPack. We implemented the strategy in the Deltix QuantOffice research platform, a purpose-built C# development studio with embedded math, statistics and data libraries.

The strategy is described in the paper by Peter Hafez “Intraday Forex Trading Based on Sentiment” – http://ravenpack.com/research/index.htm

The strategy implementation called RavenPackESS MC Portfolio is based on the RavenPack Event Sentiment score (ESS) data. The strategy calculates the average ESS for a given economy over a given time window: for instance 1-day, 1-week, 1-month and 3-month. To detect sentiment inflection points, the strategy uses a cross-over between short term and long term averages. In this implementation, the strategy uses a 1 day versus 3 month cross-over.

If the 1-day average ESS moves above the 3-month ESS, the strategy opens a long position (where we consider ESS for base currency or a short position where we consider ESS as the quotation currency). For example, if the strategy trades EURUSD and uses the ESS calculated for the US economy, it will open a short position if the 1-day average ESS moves above the 3-month and a long position if the 1-day average ESS moves below 3-month ESS. The strategy holds the position for nine hours after opening and then closes it.

Results

The strategy “RavenPackESS MC Portfolio” has the following P&L curve over the period 1 January 2010 to 30 June 2013:

The period from 1 January 2010 to 31 December 2012 (highlighted orange) is the in-sample period; the period from 1 January 2013 to 30 June 2013 (highlighted green) is the out-of-sample testing period.

Strategy parameters:
Symbols: AUDUSD EURUSD GBPUSD NZDUSD USDCAD USDCHF USDJPY; 1-min extended bars;
ESS: US ESS
Initial capital: $10,000,000
Bet size: $10,000,000
Position holding interval: 9 hours

Detailed Results for In-Sample period: 1 January 2010 to 31 December 2012
Performance report:

Drawdown chart:

Daily returns distribution:

Red bars represent the lowest 5% of daily returns;

See Next Page for Out-of-Sample Results

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