Your backtest lied to you.
A backtest shows one path. Monte Carlo shows thousands. It reveals the range of outcomes your strategy can produce, and the drawdowns lurking behind favorable sequencing.
What Monte Carlo reveals.
Monte Carlo simulation takes your actual trade results and randomizes the order thousands of times. Each rearrangement produces a different equity curve, a different drawdown, a different peak, and a different ending balance.
The result is not a single answer. It is a distribution of possible outcomes. This lets you see how likely your worst-case scenario really is, and whether your strategy can survive it.
- Worst-case maximum drawdown across all simulations
- 95th percentile drawdown (the realistic worst case)
- 50th percentile drawdown (the expected case)
- Probability of hitting a specific drawdown threshold
- Range of ending equity across all paths
- Confidence intervals for expected returns
10,000 Simulations Summary
Worst-Case DD
-18.4%
95th Percentile DD
-12.1%
50th Percentile DD
-6.3%
P(Breach 10%)
14.2%
Equity Paths (Simplified)
Key concepts.
Understanding what Monte Carlo tells you and, critically, what it does not.
Sequencing Risk
The order of your wins and losses matters as much as their magnitude. Monte Carlo isolates this variable by randomizing it.
Realistic Worst Case
The 95th percentile drawdown is more useful than the absolute worst case. It tells you what to actually prepare for.
Probability of Breach
What is the probability your account hits a specific drawdown threshold? Critical for prop firm traders who have hard limits.
Confidence Intervals
Rather than a single expected return, Monte Carlo gives you a range. Know your 25th, 50th, and 75th percentile outcomes.
Strategy Robustness
If your strategy produces wildly different outcomes under different sequences, it may be less robust than your backtest suggested.
Limitations
Monte Carlo assumes your edge is stationary. If market conditions change, the simulation input changes too. Always re-run with recent data.
Know your real risk.
Monte Carlo simulation included free. No credit card. No limits on simulations.