Monte Carlo analysis with strange results

[hanhao]

Monte Carlo analysis with strange results

preliminary testing only looks at one particular instance of an infinite number of random walk paths. It is by no means conclusive. A system will probably generate multiple buy signals on the same day. A trader with sufficient capital for only 1 more trade has to select which signal to buy on. Different trade selections will yield very different final equity results. The results analyzed only accounts for 1 possible instance out of an almost infinite number of trading decision combinations. In order to verify the statistical accuracy of the result, the system would be to be tested exhaustively. This can be achieved by random walking using Monte Carlo analysis. Whenever the system generates multiple trading signals, only one would be chosen at random. This is done 10,000 times. With this, a mean net profit and accuracy together with their corresponding standard deviation can be obtained. After which, a 95% confidence interval can be determined.




now...a typical result would look like this

Monte Carlo analysis results for net profit
Maximum Profit: $171,061.18 (342.12%)
Average Profit: $142,801.91 (285.60%)
Minimum Profit: $113,469.63 (226.94%)
Standard Deviation: $8,974.64 (17.95%)
Sample Size 10,000


now what i got is this funny curve

Monte Carlo analysis results for net profit
Maximum Profit: $487,718.13 (975.44%)
Average Profit: $440,281.30 (880.56%)
Minimum Profit: $358,173.52 (716.35%)
Standard Deviation: $48,535.88 (97.07%)
Sample Size 10,000



does anyone knows why?

 

[grantx]

Hanhao,

Why are there no negative values? What parameters/inputs are you using?

Grant.

 

[tech_trader]

looks like a bug in the software you are using. If done properly, a monte carlo analysis will always produce a normal distribution. Perhaps you should look into bootstrapping.

 

[nine]

It does look odd but what is the input data before your monte carlo analysis?

 

[Gherkin75]

There is nothing I can see that is wrong with those results. Maybe it's not profitable enough over 10,000 trades is all. I would maybe look to get some bigger profits in there.

 

[mfdoom]

There is nothing I can see that is wrong with those results. Maybe it's not profitable enough over 10,000 trades is all. I would maybe look to get some bigger profits in there.

Agreed. Average profit is not even a tenth for the high outlier. Include a two way commission trip at $10 total and that's $100,000.

Not hating on your system, but it's food for thought.

 

[Liquid validity]

Erm this thread is 2008...
Anyway, you can remove a variable % of outliers in monte carlo.

 

[scose-no-doubt]

Dunno. I think it would taper what you had left for a new normal rather than fat tailing - unless you run something to pull the outliers out of the data dump?