How a Monte Carlo trading simulation works
Each simulated trade is a weighted coin flip. It wins your average win with probability equal to your win rate and loses your average loss otherwise, and the amount risked turns R into dollars. Chain 100 flips and you have one possible account history. Repeat 2,000 times and you have a distribution: the middle shows what is typical, and the edges show how bad and how good luck alone can make it.
The average hides the worst paths. Two strategies with the same expectancy can have very different worst cases, and you only live through one path.
Worked example: 45% win rate, 2R wins, 1% risk
Take a $50,000 account, a 45% win rate, wins of 2R, losses of 1R and 1% risked per trade. Expectancy is 0.45 × 2 − 0.55 × 1 = 0.35R per trade. Over 100 trades the median run ends at $67,500, and 96% of runs finish in profit.
The edge does not remove the bad paths. Nine runs in ten end between $54,000 and $79,500, the typical run suffers a 6% peak-to-trough drawdown, and one run in twenty draws down 12% or more. If you can't sit through that, your risk per trade is too high for you, whatever the maths says.
Risk per trade changes ruin faster than win rate does
Keep everything above and raise risk from 1% to 4% per trade. The chance of hitting a 10% loss goes from 3% to 33%, and the typical worst drawdown from 6% to 15%. Each loss now costs 4% of the account instead of 1%. This is the same trade-off the risk per trade guide covers, and the position size calculator turns a risk percentage into contracts or lots.
What a break-even strategy looks like
Drop the win rate to 33% with 2R wins and the expectancy is -0.01R, break-even before costs. Even then 38% of runs end in profit over 100 trades, which is how a system with no edge can look fine for a month. But 50% of runs touch the 10% blow-up line along the way, and a run that does is over. Check your own edge first with the profit factor and expectancy calculator and the win rate calculator, which shows the range your true win rate is likely in.
What the simulation assumes
- Every trade is independent. Real results come in streaks, so real drawdowns can run deeper than the simulated ones.
- Your win rate and average R stay the same for the whole run. They don't in practice, so re-run it as your results change.
- Risk is a flat dollar amount set from the starting balance, with no compounding, so the answer is for a fixed-size plan.
- Costs are already inside your R. Use average win and loss after fees.
For a funded account, set the blow-up line to the firm's drawdown limit and the target to its profit goal. The prop firm drawdown calculator covers how trailing and static limits are measured. The methods behind these figures are on the methodology page.
Use your real numbers, not guesses
The result is only as good as the win rate and R you enter, and a guessed win rate is the easiest way to get a flattering answer. ExpectancyIQ reads them from your imported trades in the trading dashboard, and its Forecast report shows these odds for your own account. This page is educational, not financial advice.