|08-25-2011, 06:46 PM||#1|
Join Date: Dec 2009
Location: New England
Thanked 2 times in 2 posts
Monte Carlo Simulation
I took my best daytrading strategy, which has a total of 1600 trades and ran it with the Monte Carlo simulation. I have read all the forum comments and they make sense. I also read the NT links and Wikipedia etc. They all make perfect sense.
There is one aspect that troubles me with the graphs I get from NT. They look way too good. My strategy is good, but its not perfect! It has a draw-down history of $5000. It has a net equity gain of $57,000 over 3 years of daytrades including commissions and slippage.
Now this is a commercial level strategy which I actually intend to lease to clients, so it is hedge-fund quality. But the Monte Carlo simulation says that it has almost a zero percent chance of going negative. That does not seem right to me. If there is the possibility of $5000 draw-down, then there is some probability that I could start trading the system and immediately get into the $5000 draw-down.
The only way I can envision this making sense is if the averaging of simulations simply averages out the draw-down case. This is still hard to imagine, but I guess it would have to be the effect of "diversification."
The other thing I expected to get out of this simulation was the ability to determine how often I can increase my contract size. I don't see how I can determine that from this graph?
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