You can sim it, if you want. You have much bigger problems than you think. For example your 75%W, 5-1 system probably hasn't taken into account tail risk. An example of tail risk is: You go long your 5%, with your stop, etc, and 5 seconds later there is a terrorist attack on the exchange where you made the transaction, the exchange computer is damaged, and it takes 2 weeks for the market to open again, then you notice that the options you bought for tail risk protection expired 3 days before, and you are technically bankrupt. The market opens with no trades done in the middle and a huge gap down. Kelly / F , etc and others make the big wrong assumption that you get to play infinite amount of games with a static win% and payoff profile (called the LONG RUN). This of course is utter nonsense. In reality you are playing a short run of games, and affecting the outcomes and the payoff matrix as you advance in your game progression, till at some point hopefully your edge vanishes...so if you do not QUIT WHILE AHEAD, you are destined to lose BIG eventually. In other words: Your playing of the game has an effect on the game itself, and you must take that into account.
I agree with that. Simulation and calculation only have a partial resemblence to reality, not good enough in my opinion.
How do you determine if the distance was too fast or too lengthy to enter the trade? It seems like it would always come down to a judgement call. I'm trying to get my trading away from judgement calls & be more scientific or whatever you want to call it. I know what you mean about the difference between the 2 different scenarios though, the faster, lengthier move is likely to be a trap; the other move is more likely to be valid. How does a person make the entry or non-entry more objective to eliminate the "judgement call"?
@Ghost..., MCS methods are used to validate your trading setup using a high number of simulated trades model, that is a far bigger scenario, that all possible existing real historical data scenarios can't deliver! You can use MCS to check your trading system a) using only the system report results of your historical test as input for a so-called MCS based stress test or b) using MCS based data generating methods to generate alternate test data and see how your trading system also functions with this data (and not only with the real historical data) Here an example of the methodical use of MCS in a trading system development process: http://www.zentrader.de/mcsprocess_e.pdf bye, zentrader
For me, the trading size is entirely dependent upon the 20 day average trading range and the 20 day historical volatility of the instrument (or spread) in question. There is also the issue of how many open positions a trader might have on when the new trade entry makes itself known. When we enter a trade, we also set the stop-loss level and the profit target level, and those orders are entered into the system on a GTC basis (this is all done on an electronic trading platform that accomodates stop limit orders for exchange supported implied spreads). That way, we know what our maximum risk is for our open positions at any point in time.