Monte Carlo visualizer: Trade Synthesize?
Author: Christos
Creation Date: 3/28/2011 6:32 AM
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Can someone enlighten me in which cases or in what kind of Systems a Trade Synthesize selection in monte carlo would be more appropriate to use? Could you suggest any reference to take a look regarding the appropriateness of each method with respect to the trading system specifications.
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It's probably easier to indicate the type of system that Trade Scramble and Synthesis are not for. For example, a dip-buyer type system that may enter a few trades here and there, and then a large number of trades on a "shock" event, only an equity-curve scramble seems appropriate in order to model those price dip events. Otherwise, randomizing the trades throughout the entire history would probably just serve to create a much smoother and gradual equity curve that would ever be achieved by trading that type of system. (You can try it and see if I'm right.)

For strategies that have a more even or random trade distribution over time, the Trade Scramble and Synthesis methods are appropriate; each method and option providing increasing degrees of randomness. See the descriptions in the User Guide. For example, you might start with a Trade Scramble. But if your Position sizing method is based on the equity curve (% of equity, max % risk, etc.), you'd probably want to see if Trade Scramble and Randomize makes a significant difference in the average result.

In any case, there is no right and wrong, just investigation. The goal is not to rely on the results of a single simulation, which is just a stochastic series of events that are unlikely to occur in the same order ever again." The question Monte Carlo answers is "What if... the [base] simulation had occurred in this sequence...?"; and it gives you thousands of answers to the same question, providing probabilities that you can use to judge what outcomes to expect in the future - best case, worse case, and average.