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Monte Carlo Simulation

Discussion in 'Strategy Building' started by Oadmani, Oct 26, 2021.

Hello,

I am slightly confused regarding Monte Carlo Simulation. I downloaded the Equitymonaco software.

Now, the input is, the dollar value of the profit/loss of each trade. However, some stocks are worth more and some are worth a lot less. Say, there are two stocks, one is worth 8 dollars and the other is worth 600 dollars. Now the profit/loss on the one which is 8 dollars is not equivalent to the one one 600 dollars. IF I buy 1 share of each stock, then I have deployed a much higher percentage of my capital in the stock which is 600 dollars and much less in which I have invested 8 dollars. Shouldn't the percentage return on each trade be in the input?

Also, suppose, I have 10 years worth of history of my trades. Now if my capital were growing/diminishing every year, my bet size (the capital I deploy on each trade) would change accordingly, which in turn would affect the drawdown and returns. How should I account for that in the context of monte carlo simulation?

2. Millionaire

Just put in percentages into the simulator instead of dollars.
So if you made 1% precent, put in \$1.
If you made 200% put in \$200

Going forward it might be a good idea to use R multiples instead.

Last edited: Oct 26, 2021

If I were to do this, what would be the initial capital?

For instance, \$1 and \$200 wouldn't have the same effect on a \$50000 account as compared to a \$5000 account.