ough there is such a market bias with an up-trend, the short side of our trading

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 trading rule which detects a tiny profitable bias
in prices.
using the example of the British po
46How to develop a trading system step-by-step
und/US dollar pair
Therefore we are now at a point when the trading system development work has jus
t
started. There are lots of steps to perform until you can work out a complete tr
ading
system. The profitability of this system must be increased and exits must be add
ed. Before
we do this we take trading costs into consideration to make the whole approach m
ore
realistic.
Calculation after adding slippage and commissions
When subtracting $5 of commission and $25 of slippage (which is three pips in to
tal) per
round turn from the above mentioned average per trade profit of $35 only a $5 av
erage
profit per trade is left. The detailed equity curve and the drawdown graph show
the result
of this more realistic calculation (Figure 3.3). Whereas the equity curve is now
moving
sideways with lots of oscillations, the underwater equity curve reveals big draw
downs
(up to 15%) and long phases which the trading system needs to recov