Profit Distributions, Excursions, & Monte Carlo

Last week I did some back test work on the so-called Golden cross and the so-called death cross, you can review those results and rules: HERE!

Today I will expand those back tests by showing the profit distribution, the maximum favorable and adverse excursions, and a Monte Carlo simulation. I back tested the Dow Jones Industrial’s and SPY. Today I will just look at SPY results:

Profit Distributions:


Most of the negative trades were concentrated between -5% and -15%. On the positive side 3 managed a 3% gain, 2 a 2% gain and most (1’s) distributed across a broad spectrum with one outlier managing a 120% gain. You would need more than the rules here to capture that one.

Maximum Favorable Excursions:


Most in the +10% to +20% range with one outlier at 150%. If you think you can call those in advance, well I would think again.

Max Adverse Excursions:

maed_spyThe chart above speaks for itself. These charts today are most often not considered by system traders but they should be.

Finally, Monte Carlo Simulations / Risk of Ruin

Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted due to the intervention of random variables. Investopedia