SYSTEM DEVELOPMENT

In developping a trade system on the BUND the aspect of the Profit/Loss ratio worried me and still does. No system will ever be perfect, you have to find a tradeable system. Now in my backward and forward testing I got a P/L ratio of 1. This means on average one loser on two trades. So it is crucial that my winning trades are bigger than my losers.

I mentioned before the bad spread of the BUND, this comes in especially if you have a system with a P/L of 1. Suppose you have with the BUND a loser of 10 points and a winner of 10 points. What will be the result? The spread is 1 point, so the loss on the losing trade will be 12 points, whilst your win of the winning trade will be 8 points. Net is this a loss of 4 points, besides the transactions costs. 4 Points being 40% of the trade...
So my winning trades have to be at least 1.4 times bigger than my losing trades.

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