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In TASC Feb/2001 is a practical example about MCS. An abstract can be found here:
http://www.traders.com/Documentation/FEEDbk_docs/Archive/022001/Abstracts_new/Bry
ant/Bryant.html
I'm not sure yet if it is the "right" process applied to portfolio/system
backtesting they understand and write under "MCS":
"In Monte Carlo simulations, the basic idea is to take a sequence of trades
generated by a trading system, randomize the order of trades, and calculate the
rate of return and the maximum drawdown, assuming that x% of the account is
risked on each trade. The process is repeated several hundred times, each time
using a different random sequence of the same trades. You can then pose a
question such as, "If 5% of the account is risked on each trade, what is the
probability that the maximum drawdown will be less than 25%?" If 1,000 random
sequences of trades are simulated with 5% risk, for example, and 940 of them have
maximum drawdowns of less than 25%, then you could say the probability of
achieving a maximum drawdown of less than 25% is 94% (940/1,000)."
I think (not fully studied yet) that I have to doubt this method.
Any better methods?
UM
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