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Monte Carlo Simulation
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Monte Carlo Simulation

  #1 (permalink)
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Monte Carlo Simulation

Now that NinjaTrader 7 features a Monte Carlo simulator, I was wondering if the math majors in the forum could help me better understand the appropriate way to use it and incorporate it into my trading.

As you probably know, I suck at math.

I could use some real world examples, as the NT7 help doesn't spell it out enough for me to grasp it seems.

This is from the NT7 help guide:

What is Monte Carlo Simulation?
Monte Carlo Simulation is a mathematical technique that uses repeated random sampling to compute a range of possible results with their respective probability. NinjaTrader runs Monte Carlo Simulation by randomly combining the trade results in a defined series of simulations. A graph of the results are plotted with the statistic values or Profit/Loss on the Y - axis and the probability on the X - axis as a percentage.

Why use Monte Carlo Simulation?
Although a backtest of a NinjaScript strategy may produce profitable results, those results may have just been due to good luck. In real life, you may have a string of bad trades that can wipe out the account before the good trades appear, therefore it would be helpful to understand the probability of such a string of bad trades. Monte Carlo Simulation will randomize your trade results over and over again in multiple simulations to provide you with a normal distribution of simulation performance. The trader can use this information to see the top or bottom percent of trades (outliers) that will cause the most variability in the strategy as well as the most statistically probable results.

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The horizontal axis of the Monte Carlo Simulation graph shows the percentage of simulations that have fallen below the Y - axis value. For example, if you run a Monte Carlo Simulation setting the # of Simulations to "100" and using the Cumulative Profit graph, the intersection of the 50% X - value and the associated Y value means that 50 of your simulations will be below that cumulative profit/loss value, and oppositely the remaining 50 simulations will have a greater cumulative profit/loss.

The vertical axis of the Monte Carlo Simulation graph displays the measured unit for the Graph item selected such as Profit/Loss, statistical information, or time.


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  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

To open the Monte Carlo Simulation window in NinjaTrader 7:

1. Run a Backtest, Optimization, Walk-Forward Optimization, or run an Account Performance report.
2. Left mouse click on the Trades tab within any of the reports
3. Right mouse click in the data grid and select the item Monte Carlo Simulation...


Last edited by sam028; February 3rd, 2010 at 05:51 PM.
  #3 (permalink)
san ramon
Trading Experience: Beginner
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Hi Mike, you may find some helpful info here Monte Carlo Analysis Article -- Adaptrade Software .......zikonc

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  #4 (permalink)
Trading Experience: Intermediate
Platform: ninja, excel
Favorite Futures: YM, equities
darthtrader3.6's Avatar
Posts: 86 since Jan 2010
Thanks: 6 given, 46 received

If you look up the old thread "system developement with acrary" on elitetrader he has a good rundown of how he uses monte carlo sim to basically come up a random variable to test that if his systems beat alot of monkeys throwing darts.
I've complained on the ninja forums though that this sim in 7 is basically useless because you can't control for length of the random trades.
If your average hold time on a trade is 5 minutes, you don't really care if you beat random trades that are lasting a week.

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