Monte Carlo Simulation

[stevej]

Readers may be interested in running the atached spreadsheet.

Adjust the figures in the yellow boxes to fit your profile then keep presing F9.

Hope you find it useful.

[Matt Bowen]

Hi Steve,

That was Excellent!!! Did you build this...Great work!!!I love stuff like this because it immediately allows a new trader to see what they are missing. I especially like when you hit F9and no matter what the market throws at it, the end result is a great 100 trading period. After running many different test, the worst outcome was doubling my money after 100 trades.

I love that saying by Larry Hite: It's amazing how rich you can get by NOT being perfect. It's kind of like my early years of trading when I was trying to be right on 9 out of 10 trades (hell, I used to think 7 winners out of 10 trades was a bad performance). Little did I know (until years later) that 4 out of 10 was normal for a professional trader. It's absolute lunacy to think you can get 9 winners out of 10 in this business.

It was a total catharsis when I first discovered position sizing, I thought to myself how in the hell can somebody make money winning only 30% of the time? Well, it's actually pretty easy if you once you start to put the pieces together. The two most import parts are First, controlling the losses., by doing this you only add to the second part which is Risk Reward ratio.

The size of the R-Multiple (winner or loser) is completely determined by the exit strategy of a method and the assumed initial risk of the trade. This statement emphasizes how exit strategies are far more important than entry strategies. After a position is opened, the only thing affects the size of the R-Multiple is the exit strategy. One thing people fail to realize about MTPredictor is the robustness (high R-Multiple trades) that the MTPredictor signals generate. In other words, a coin flip always delivers a 1 to 1 R-Multiple, but many MTPredictor clients carry a 4.0 to 1 or even 5 to 1 risk/reward ratio on their current portfolios.

By the way I ran the test using the MonteCarlo with 10,774 pounds or $20,000 U.S Dollars:

20,000.00 USD
United States Dollars = 10,774.10 GBP
United Kingdom Pounds
1 USD = 0.538705 GBP 1 GBP = 1.85630 USD

Capital (£) £10,774.00
Risk (%) 0.02
Winning Prob.(%) 31
Reward/Risk 4.27
Commission (£) £15.00

Winning Trades No. 35
Final Return £50,944.59
Drawdown 10,333
Peak Gain 54,128

As you can see, I'm winning 31% of the time and my Risk Reward is 4.27 (This is the same as my current portfolio on the newsletter). Now you see how it's possible to make money being right ony 3 out of every 10 trades. Can you imagine what this looks like compounded after 10 years... :eek:

It will take the average trader 6 years to figure this out, but they can figure it out in 6 days if they just read one book:

http://www.iitm.com/products/books/trade_your_way_to_financial_free.htm

[stevej]

Matt,

How right you are that the average trader finds it difficult to accept the inevitable drawdowns when they come.

The attached file may help with that (alongside the Monte Carlo)

Steve

[stevej]

As you can see, I'm winning 31% of the time and my Risk Reward is 4.27 (This is the same as my current portfolio on the newsletter). Now you see how it's possible to make money being right ony 3 out of every 10 trades. Can you imagine what this looks like compounded after 10 years... :eek:

I dont know about 10 years but the results after about 500 trades (2-3 years?) can be estimated from MonteCarlo500 attached hereto.

Enjoy but don't get too carried away and if the calculations are wrong don't blame me!:D

If anybody fancies amending the sums so as to (a) calculate commission properly and (b) vary the R multiple so it is not simply the chosen figure on each winning trade then be my guest - I can't be bothered. Let me have a copy though.;)

[stylist]

Thanks steve this is very cool tool let you know what to expect from each system instead of wondering if its broken or not

[Rimu]

Have run three different commission methods through my spreadsheet,
Top one is as is from MTP RR position sizer module,
Middle one is with 15 pound (7.5 a side ?) commission,
Bottom one is with 0.3 spread ( my brokers rate :( ).
Amazing the difference it makes on the completed transactions RR (in column O ), admittedly it is exagerated due to the entry candles small size, but conversely these are usually where the bigger quick profits are made. Also, note the true risk ( in column N ), it is the MTP module risk ( in column I ) calc with commission/ spread added and is what your broker actually takes!!