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First.. let me say I am relatively clueless as to the practical usefulness
of the subject, and am seeking some enlightenment. Does anyone use Monte
Carlo simulations of trades/equity curve as a useful, practical tool in
their trading? If so, how? I'm failing to grasp the practical usefulness. In
fact, I'm not sure I even agree with the theory in regard to trading, as it
applies to profit and drawdown distribution -- but that may be a different,
religious issue ;-)
Specifically... what practical benefit is it to know that there's a
5% (or x%) chance my maximum drawdown (or any drawdown) will be exceeded in
the next 60 (or however many) days? How does that help you make even one
decision regarding your trading other than raising a red flag as to when
your system may/may not be performing within a wide range of probabilities?
Believe me, if the 5% max drawdown chance is realized, it's no longer a 5%
probability, but 100% reality ;-) Does this really provide a better
analysis than just monitoring your max historical drawdown/profit
distribution for indications your method is not performing at an acceptable
level? Is it supposed to be an indicator of the stability/robustness of your
system? If so, I still can't see the value, because you'll only know AFTER
the fact. Seems to me that if your system/method isn't built on sound
trading logic (and not overly fitted/filtered), you're only adding another
layer of obfuscation. And to the contrary, if you've done a decent job
building a robust system(s), what benefit are these obscure( IMO)
probabilities?
Confused in Seattle....
Ray
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