Trading Monte Carlo Simulator
Generate independent hypothetical sequences of wins and losses and examine the distribution of possible outcomes from your assumptions.
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How this tool works
Generate independent hypothetical sequences of wins and losses and examine the distribution of possible outcomes from your assumptions. Inputs should represent your own assumptions, current instrument specifications and account denomination; no automatic market-data feed is used unless the page explicitly states otherwise.
On each simulated trade, equity is multiplied by (1 + risk fraction × reward multiple) for a win or (1 − risk fraction) for a loss.
Worked example
A 45% assumed win rate and 2R average win could produce widely different equity curves even with identical starting capital.
What to check before relying on a result
Check the direction of the trade, units and currency, market contract specifications, realistic spreads and slippage, execution conditions, any applicable taxes and fees, and whether the assumed model fits your instrument. A calculator does not eliminate market risk.
Frequently asked questions
Does the simulator predict future returns?
No. It illustrates hypothetical variability under fixed user-supplied assumptions that may not hold in practice.
What is the drawdown percentile?
It summarises the maximum peak-to-trough decline measured across each simulated path.
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Explore professional trading courses →What does a Monte Carlo trading simulation tell you?
A Monte Carlo simulation generates many hypothetical sequences using specified win probability, winning reward multiple and percentage equity risk. By examining distributions of resulting equity and drawdown, you can see how outcome order matters even when assumed average expectancy is unchanged. It is a scenario tool—not a statistically validated forecast, backtest or prediction of a particular trading strategy.
How to use this calculator correctly
- Step 1. Enter starting capital, an assumed win rate and the average reward multiple in units of risk (R).
- Step 2. Set the fraction of remaining equity risked per trade, number of trades and simulation count.
- Step 3. Choose a ruin threshold as a percentage of initial capital; the model counts paths crossing that level.
- Step 4. Re-run the simulation and compare median, lower-decile equity, worst drawdowns and threshold crossings.
Worked comparisons
These are illustrative arithmetic examples, not forecasts or market quotations. They show how changing assumptions affects the calculation.
| Assumption | Illustrative setting | Interpretation |
|---|---|---|
| Win probability | 45% | Each trial independently wins with probability 0.45 |
| Average winner | 2R | Winning trade gains twice the amount risked |
| Risk per trade | 1% of equity | Cash risk recalculated after each hypothetical trade |
| Number of paths | 300 | Monte Carlo sample; result fluctuates from run to run |
How to interpret the results
The model draws independent binary wins and losses and compounds the resulting account changes. That independence assumption overlooks serial correlation, shifting volatility, fat-tailed moves, trading frictions, partial exits, stop gaps and position constraints. A 10th-percentile ending equity number is a quantile of the simulation output under its chosen model, not a claim that live equity has exactly a 10% chance of falling below that threshold.
Common mistakes and limitations
- A handful of backtested trades is generally not enough to justify a fixed long-run win probability.
- Set a realistic reward multiple based on realised outcomes rather than proposed target prices.
- The simulator deliberately omits costs and detailed execution dynamics, so interpret the output as an optimistic simplification when costs are significant.
Further questions
Why does the result change each time?
The tool draws new random sequences on each run. Increasing simulation count reduces sampling noise but not model uncertainty.
Is the median equity a guaranteed result?
No. It is one summary statistic from hypothetical outcomes conditioned on assumptions.
Does the ruin threshold mean bankruptcy?
No. It is a user-defined equity floor, not a legal or broker-specific definition of insolvency.
Related Traders MBA learning and references
Read the relevant educational analysis, tools and primary-source specifications:
Figures are illustrative and depend on input assumptions. This material provides general education, not financial advice, trading signals or a forecast. Verify instruments, exchange or broker terms and execution costs before relying on a calculation.