TradeStation Portfolio Maestro

Monte Carlo Analysis

The purpose of the Monte-Carlo Analysis (MCA) is to be able to evaluate alternative statistical outcomes drawn from the historical data distribution.

MCA allows you to re-sample percent returns within a specified portfolio. This type of simulation shows you what alternative possibilities and scenarios exist for different parameters including drawdown and total return on equity within the same statistical characteristics of returns. This feature can be customized, as it asks you to specify the type of simulation and number of iterations to run in calculating this "what-if" scenario. (e.g., what drawdown might one expect with a 10% probability?)

You can specify the date range for your historical sample of choice, and change the sample parameters as well as values. The Monte Carlo simulation can sample the following parameters:

• Daily
• Weekly
• Monthly

The simulation parameters box allows you to specify the number of iterations, or total times the simulation is re-sampled, as well as the trial size, which cycles the specified sample value. For example, if you specified "daily" in the ‘Historical Sample’ box and "100" in the ‘Trial Size’, then Portfolio Maestro will sample back 100 days.

The Simulation Method drop-down list allows you to specify the type of re-sampling that the simulator will employ to generate the hypothetical data iterations. The three different types of re-sampling are:

• Bootstrap with Replacement - This method utilizes real data from the portfolio and replaces the same values in the distribution after sampling, effectively letting the same data to be re-sampled for that specific iteration
• Bootstrap without Replacement - This method is the same as above, with the exception that it doesn’t return the value to the real distribution for re-sampling
• Monte Carlo with Normal Distribution - This method uses a hypothetical distribution of values based on the standard deviation and the mean of the real values from the actual portfolio distribution

Below, is the Monte Carlo distribution of total return for 10 months (sampled Bootstrap with Replacement) for 1000 iterations.

Run Analysis and View Results

To run MCA, select a report to simulate in the lower pane and click the Run Analysis button.

• The Statistics or Graphs tabs allows viewing the results in a table or graph format.
• The Statistics tab shows the simulation results for mean, median, standard deviation, maximum, minimum and the percentiles from 1 to 99 for total return, average return, maximum drawdown and the longest period between equity peaks.
• The drop-down list above the chart allows you to choose between cumulative distributions of total return, average return, maximum drawdown and longest period between equity peaks.
• It is possible to point a cursor on a data point on the chart and see the corresponding data values in the data table on the chart, if the data values are shown (click the Data Grid button on the toolbar).

Exporting the results to Excel

 To export the simulation results to Excel, click the Export to Excel icon on the toolbar, enter a name for the report to be saved, and click OK.