Variance: what a good month and a bad month can look like with the same edge

[Shadow Trader]

A strategy with a genuine positive expectancy can still produce a losing month. That's not a flaw, it's arithmetic.

Suppose a system takes two hundred trades a month with a small edge and a standard deviation per trade that dwarfs it. Monthly results will scatter widely around the average. Some months will be strongly positive, and a meaningful fraction will be negative.

This is why judging a system on a single month is a trap. Two traders with identical edges can post totally different monthly returns. One gets praise, the other gets doubt, and neither reflects skill.

Practical consequences: avoid changing the strategy after a bad month without evidence of a real problem. Avoid increasing risk after a good one. Evaluate over larger samples: quarterly or by number of trades rather than by calendar month.

Simulating the strategy with random trade order, using the actual distribution of results, shows the range of outcomes that variance alone can create. The spread is usually humbling.

What does a simulation of the trade history say about the range of plausible monthly results?