A Monte Carlo by Hand: How Bad Can the Order Be?
Posted: Wed Oct 28, 2026 6:43 pm
A Monte Carlo by Hand: How Bad Can the Order Be?
A strategy produced ten trades: four wins of plus 2R and six losses of minus 1R, a total of plus 2R. If the same ten trades had happened in a different order, how bad could the drawdown have been?
Worst case: all six losses first. The account drops 6R before any win. The drawdown is 6R. At 1 percent risk, that is about 6 percent.
Best case: all four wins first, then the losses. The account rises 8R, then falls 6R, ending at plus 2R. The maximum drawdown from the peak is 6R again, interestingly, because the six losses still come in a row after the peak.
To get a low drawdown, the losses must be interspersed with wins.
How likely is a run of six losses in a row? There are 10 positions for 4 wins, so the number of distinct orderings is 10 choose 4, which is 210. Sequences where all six losses are consecutive: the wins split into a group before the loss block and a group after, with 0 to 4 wins on the first side, giving 5 sequences. Probability: 5 divided by 210, about 2.4 percent.
So a random reordering has a small chance of the worst case, but the typical maximum drawdown is probably 3R or 4R.
The lesson: your historical drawdown is one draw from a distribution. A simulation of thousands of orderings shows the 95th percentile, which is the number to plan around.
Exercise: simulate 1,000 reorderings of your last fifty trades in a spreadsheet.
A strategy produced ten trades: four wins of plus 2R and six losses of minus 1R, a total of plus 2R. If the same ten trades had happened in a different order, how bad could the drawdown have been?
Worst case: all six losses first. The account drops 6R before any win. The drawdown is 6R. At 1 percent risk, that is about 6 percent.
Best case: all four wins first, then the losses. The account rises 8R, then falls 6R, ending at plus 2R. The maximum drawdown from the peak is 6R again, interestingly, because the six losses still come in a row after the peak.
To get a low drawdown, the losses must be interspersed with wins.
How likely is a run of six losses in a row? There are 10 positions for 4 wins, so the number of distinct orderings is 10 choose 4, which is 210. Sequences where all six losses are consecutive: the wins split into a group before the loss block and a group after, with 0 to 4 wins on the first side, giving 5 sequences. Probability: 5 divided by 210, about 2.4 percent.
So a random reordering has a small chance of the worst case, but the typical maximum drawdown is probably 3R or 4R.
The lesson: your historical drawdown is one draw from a distribution. A simulation of thousands of orderings shows the 95th percentile, which is the number to plan around.
Exercise: simulate 1,000 reorderings of your last fifty trades in a spreadsheet.