i have been working on this trading system that uses digital filters to generate signals. the system works fine during normal market hours. but it goes haywire when there is news release. i have specifically ensured that all signals generated within 2 hours of a news release be rejected. the problem is how to interpret the signals coming a few minutes after a news release. i was just wondering if there is a way of treating the huge spikes caused due to news release. any insight would be helpful. PS: the system trades spot forex.
You have to mention more details as in what are your assumptions when you fit the digital filter. Also whether is it linear or not. If not then what non-linearities have you taken into account. The answer depends on that.
Because you can either look at it as a form of non-stationarity or a different process altogether. Also how much time behind are you looking at to model the current situation, That will decide how long should you switch off the system after news has come. Finally you can make your parameters adaptable to some external variable to try and adjust for the news.