The considered system shows the main properties of trend following trading strat

egies:
The percentage of profitable trades is low (36.5%). From the 1913 performed trad
es,
only 698 are profitable whereas the majority (1215) end with a loss.
45Trading Systems
The overall gains of the system result from the high ratio of average win/averag
e
losing trade. The average winning trade is with US$846, which is bigger than the
average losing trade (US$435) by a factor of two.
The average time in winning trades is about three times longer than the average
time
which the system stays in losing trades (62 bars versus 24 bars).
This shows that the system logic follows perhaps the most important rule in trad
ing which
everybody knows but which is yet difficult to follow: cut the losses short and l
et the
profits run. This trading rule is psychologically hard to adhere to since you of
ten suffer
directly from your losses and on the other hand you have to wait a long time unt
il you
can earn your rare but hefty gains.
It is worth mentioning that the long side of the trading system is much more pro
fitable
than its short side ($56,900 vs. $9,400 net profit). This observation will be ex
amined in
Chapter 5.3 again when we discuss the so called market bias. The market bias means
the tendency of a market to favour special features or parts of a trading system
, like in
this case the better profitability of the trend-following systems long side in an
overall
upward trend of the tested market. The good point for our trading system here is
that
although there is such a market bias with an up-trend, the short side of our tra
ding system
is still in the profitable range. This underlines the stability of this symmetri
cally built
system.
Furthermore, you of course get nearly the same number of short trades (956) as l
ong
trades (957) because the trading system only reverses positions. Since we have n
ot added
any exits the system stays in the market 100% of the time, holding either a long
or a short
position.
Finally we want to underline a fact which should never be underestimated when
developing trading systems: the statistical significance of your performed tests
. If you
develop a new system and in testing you have only 100 signals, or even less, the
probability of achieving profitable results just by accident is very high. With
nearly 2000
trades in our back-test the statistical probability is high that this strategy w
ill perform in
a similar way in the (near) future.
So what have you gained so far? Statistics show that the entry logic is sound an
d has a
certain probability of maintaining its behaviour in the future. If you however t
ake a closer
look at the trading figures you will see that the system produces only an averag
e profit

of US$35; this level of average profit per trade without any trading costs is ve
ry low! So
what you have so far is just a tradin