Monte Carlo Simulation

Monte Carlo Simulation is a statistical technique that uses repeated random sampling to model the probability distribution of possible outcomes. In trading, it takes your strategy parameters and runs thousands of randomized trade sequences to show the full range of possible equity curves.

Even a profitable strategy can produce wildly different outcomes depending on trade order. A 55% win rate system could hit 8 losses in a row early and feel broken, or string wins together and look incredible. Monte Carlo shows you both scenarios and everything in between.

Risk Analysis: Understand worst-case drawdowns and probability of ruin before risking real capital.

Position Sizing: See how different risk-per-trade values affect your survival probability across thousands of simulations.

Scenario: You have backtested your strategy and found a 50% win rate with a 2:1 reward-to-risk ratio. You want to see what 200 trades might look like over thousands of random sequences.

Step 1: Enter your starting balance: $10,000

Step 2: Set win rate: 50%

Step 3: Set reward:risk ratio: 2.0

Step 4: Set risk per trade: 1%

Step 5: Set number of trades: 200

Step 6: Click simulate and observe the range of equity curves

Result: You will see multiple equity paths. The median might show growth to $14,000, but some paths might dip to $8,500 before recovering. The worst-case path shows your maximum potential drawdown under unlucky trade sequences.

Why this matters: Backtesting shows you ONE path (what actually happened). Monte Carlo shows you thousands of POSSIBLE paths. If even the worst path stays above your ruin threshold, your strategy is statistically robust.