Hi, I’ve been learning and researching about Monte Carlo simulations. Currently building my own one in spreadsheet form. However, If my back test strategy was done using a risk of 1% per trade, will this have problems when trying to do Monte Carlo simulations? I only wonder because In the back test, say I start with $10,000, risk 1% per trade and do 100 trades. By trade 90 say my equity is at $30,000 so I’m risking $300 per trade and I lose a few trades here and there. Now when I come to do the simulator, it’s possible some of those $300 losses (which were towards the end of my back test) could come out at the start of the simulated runs. So I could get a simulated run with large losses early on but that wouldn’t happen in my real trading as I wouldn’t be risking that much early on. Hope I have explained that well. Just wondered what is the best thing to do in this scenario? I did think I could run the back test using a fixed number of contracts or fixed dollar amount, but I don’t trade that way, and I thought it would make sense to keep it the same as my real trading systems which are a fixed percent risk per trade. Thanks for any suggestions or ideas
you wrote "say I start with $10,000, risk 1% per trade and do 100 trades" and question "it’s possible some of those $300 losses (which were towards the end of my back test) could come out at the start of the simulated runs" doesn't make sense
In the first row you start with $10,000 so losing 1% means you lose $100, and on the second row your equity should now be $9,800, then you lose 1%, thats a -$98 loss...
Do you know any programming lanugages, eg python. Just ask Chat gpt to write you a montecarlo simulator in your favourite language. Then run it inside an online ide. eg: "write me a monte carlo simulator in python for a trading sytems that risk 1% and has 40% change of winning 2R and 60% chance of losing 1R"
%% Like the % risk myself; but strange how drawdowns + losses tend be worse in real trading-investing than all the back tests, forwards tests+ educated guesses. Even worse with derivatives. Reading Rosy repost, of course the $ 300 loss or more \ could come early+ not late I ran out of shotgun shells once on a hot game bird shoot+ doing tat all my life; blessed with buying some more , but cant count on that. DONT run out of bullets; UK fund manger warned ; then the elephnat comes by
You need a bigger back test. 3000+ trades, then you will have some very big drawdowns in the back test. If your back test is only 30 or 300 trades, you unlikely to have a big drawdown in your back test.
%% EXACTLY/ on that more = better. I would also get something more than a US dollar amount, great currency, but in1928- 1933 12 eggs cost about $00.29. ANY trade , could possibly lose it all even if rare. So use all the data/1776 thru now /US stock market has some great trends. I like a metals business , hit rate profit is much better than even SPY+ QQQ benchmark; but cant really scale it like can scale up SPY + such...... So , like the UK fund manager said\ dont run out of bullets/ then the elephant walks by. 79or 80 year young woman got killed, in Africa by a rouge elephant this week, real time .
%% I had a '72 Monte Carlo back in the day, I think I paid $800 for it. Should have kept it. Classics now. Hard to back-test which cars will be classics. Buy one of these and hide it in your barn. https://en.wikipedia.org/wiki/Toyota_FJ_Cruiser. %% Don't fill with ethanol
%% LOL /I like that classic car metal > better than BA. Even though Peter Lynch liked BA+ maybe partly because of his huge Flying Tiger winner . Its a bit more complex than head + shoulders pattern; i liked that watchdog pattern , for the tire dealer , her 2 ears were on full alert as she sang out a strong warning bark LOL
%% I could never figure out why Explorers rolled over when one of those Firestone tires blew out. But that's why I'm not a lawyer I guess. Cramer has a time window on how long it takes people to forget bad things... I forget what it is().... but he used it on Chipotles, the E-coli scare..... I think Firestone took longer. One man wanted to sell me a muffler shop a few years back.... heck of a biz, they print cash... I was dumb... I thought we'd be all electric by '25. I figured oil changes and putting plugs in Stoney's slow leak tires wouldn't cover the property taxes, let alone the help. Canslim at IBD gives Midas a bad grade. H&R Block is investing in AI... the golden touch. I foreclosed anyway. I hope Cramer was right... don't need restless nights.