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1. yes, it was small, about $9
2. Randomly selected from the list of 97 actual trades
3. for simtrades i have used function that gives normally distributed value for given mean and stddev
4. need to check book on statistics
I am new to Monte Carlo simulations, so please correct me if I am wrong. For the Monte Carlo simulation, system 5000 times randomly selected 20 trades from the list of 97 trades. On the chart one of the selection is displayed and called Monte carlo simulation. I have created this chart to visualize how one of the paticulare equity curve placed between boundaries provided by normal distribution formula.
Gotcha, you have shown 1 of the 5000 possible equity curves from your simulation. I'm not sure how you picked that one. Does it give you any information, as opposed to picking a different one of the 5000 possible?
Everything else makes sense - your average line, your upper and lower bounds, and your results line. That is what I usually show on my tracking sheet (although I use the sim results instead of the std dev results).
What I always find interesting when doing this exercise is the bottom std dev curve. In this case, it is saying that even after 20 trades, there is a significant chance (16%) that you will have a $600 or greater loss.
Most people, I would imagine, would quit any system after 20 trades if it had lost $600. But, that is how the system COULD perform - and it is a long term winning system (+$9 per trade).
My point is most people give up on a system before giving the long term averages to work out, and make the system profitable. Most people need to see profit from the start (they think "I should be profitable right away, since my system is historically profitable!"). This exercise shows that is not always going to happen.
Something to think about for everyone, when you start trading your next system and it starts out bad. Is the system itself bad, or is randomness leading to early losses? Usually, I suspect, it is the latter.
