Risk Management Simulation Tool

This is the tool described in The Essentials of Trading, by John Forman and used in the examples presented in the book. Enter the requested information below to run a simulation. It will then present several statistics which can be used to evaluate a given system and/or risk level. A couple of points on the requested data:

Use whole numbers, not decimals for Win Rate%
The Win/Loss Ratio is the system's Average Winner divided by its Average Loser. For example, a system which makes 1.20 each time it wins and loses 0.80 each time it loses, would have a Win/Loss ratio of 1.50.
For Run Length, select a number of consecutive losing trades (run) to test for. This test will spit out a estimate of the probability of that happening.
Ruin % is the point at which you decide or are forced to stop trading. It will be used to determine a Risk of Ruin (RoR) for your system.
Enter a # of Trades over which you want to test in whole numbers based on a measure that is important to you. For example, a day trader might enter 260 to approximate a year of trading.
Trade Size is a multiplier to approximate risk taken as it is the loss taken for losing trades. For example, a trade size of 5 means each loss will be 5 points or 5 percent, based on the next setting.
For Pts or Pct? indicate whether this is a points-only test, or monetary. If you select Pts, system profits will be calculated as Win/Loss Ratio x Trade Size. Selecting Pct means profits will be calculated as Account Value x Win/Loss Ratio x Trade Size. Make sure that your Win/Loss Ratio is based on either points or percentages as you indicated here.

Win Rate %			Win/Loss Ratio
Run Length			Ruin %
# of Trades			Trade Size
			Pts or Pct?

TEST RESULTS

Longest Win Streak:	Ruin Rate: %	Biggest Drawdown: %
Longest Losing Streak:	Best Result:	Longest Drawdown: trades
Frequency of -loss runs: %	Worst Result:	Average Result:

- The streak figures are in trades.
- The results are ending account balances assuming a start at 100.
- The drawdown readings are measured from account balance peaks.

The results above are based on a Monte Carlo simulation in which a randomly generated series of trades were made 500 times using the probability input. If you run the test again (clicks the button) you will notice some changes in the results, but they will be fairly close.

Below you can see the actual systems results.

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