This tool analyzes the potential performance, risk, and probability of reaching a target for a trading strategy using a scientific approach with the Monte Carlo simulation technique. Discover the strengths and weaknesses of your strategy by entering your parameters.
Success in financial markets is not just about making correct predictions. It's also crucial to understand risks, systematically evaluate your strategy, and ensure long-term sustainability. This tool helps you test your trading and finance strategies with a scientific approach.
A solid risk management plan should be at the core of every trading strategy. Monte Carlo simulation visualizes potential risk scenarios your strategy might face and helps you understand ways to protect your capital even in worst-case scenarios. Metrics like stop loss and drawdown are indispensable parts of this process.
Compound growth is the process of earning returns on your initial capital as well as on the accumulated earnings. This effect, where your profits from trades are added to your capital for subsequent trades, can dramatically increase your returns over the long term. This simulator models the effect of compound growth to help you visualize potential long-term outcomes.
Monte Carlo simulation is a statistical technique that estimates the probability distribution of an event by repeating it thousands of times. This tool provides you with concrete data by testing your trading strategy's profitability, probability of drawdown, and chance of reaching your target across numerous random scenarios.
The simulation results reveal how a strategy's potential profits and losses are distributed. These distribution charts are crucial for understanding how predictable or volatile your strategy is. This allows you to gain a clear idea of the "best-case scenario" and "worst-case scenario" outcomes.
Drawdown is a measure of how much a trading account has fallen from its peak. A high drawdown can indicate that the strategy carries a high risk. This tool helps you understand how much drawdown risk your strategy has and how you can manage this risk.
This simulator analyzes not only the profit potential of a trading strategy but also the possible drawdown risk and target success rate. When used with backtesting, you can obtain more reliable data about your strategy's past performance and more accurately predict future potential outcomes.
Position sizing is a key risk management principle that determines how much capital to risk on each trade. Improper position sizing can ruin even a profitable strategy. Our simulator helps you understand the impact of different position sizing scenarios on your strategy's overall performance.
Win rate is the ratio of winning trades to the total number of trades. The Risk/Reward (R:R) ratio is the ratio of the amount risked in a trade to the potential profit. The balance between these two metrics is crucial for a successful strategy. This simulator allows you to test this balance and determine the optimal R:R ratio.
Some of the metrics used to evaluate a strategy's success are the Sharpe Ratio and the Sortino Ratio. The Sharpe Ratio measures an investment's risk-adjusted return, while the Sortino Ratio offers a more specific risk analysis by only considering negative volatility (drawdown). These metrics help you compare your strategy's return based on its risk level.
The success of a single strategy is not enough; the management of a portfolio composed of different strategies or assets is also crucial. Monte Carlo simulations can also be used to evaluate the correlation between assets in your portfolio and its effect on overall risk.
This tool is invaluable for those developing systematic and automated trading strategies (algorithmic trading). Before determining the parameters of your algorithm (e.g., stop loss and take profit), you can use this simulator to test potential risk and return scenarios and optimize your strategy.
One of the most challenging aspects of trading is avoiding emotional decisions. This simulator provides the objective results of your strategy, giving you the confidence and discipline needed to stick to your trading plan. By testing "what-if" scenarios, the simulation helps prevent acting out of panic or greed.