Input Notes

Do not enter $ in payout fields. Limit probabilities up to two decimal places

Computational Notes

The generator draws a uniformly distributed random integer from 0 to 99 and then determines if a trade is profitable or unprofitable based on the probabilities entered as input. For example, if the probability of a profitable trade is 0.50 and the probability of an unprofitable trade is 0.50, a random number greater than or equal to 0 and less than or equal to 49 represents a profitable trade. A random number greater than or equal to 50 and less than or equal to 99 represents an unprofitable trade. If the the probability of a profitable trade is 0.63 and the probability of an unprofitable trade is 0.37, a random number greater than or equal to 0 and less than or equal to 62 represents a profitable trade. A random number greater than or equal to 63 and less than or equal to 99 represents an unprofitable trade.

The expected value of a trade is:

Expected value = Probability of Profitable Trade * Payoff of Profitable Trade + Probability of Unprofitable Trade * Payoff of Unprofitable Trade

If the expected value of a trade is positive, the majority of trades tend to be profitable. Gains tend to accumulate but in some cases trading payoffs can go to zero or negative.

If the expected value of a trade is negative, losses tend to accumulate. For a combination of a relatively high probability of unprofitable trades and/or a large negative payout, total payouts can go negative after only a few trades (sometimes after only one trade).

There is no "learning" in this generator. Both probabilities and payouts remain the same for each trade no matter how many trades are specified.

Simulations

A simulation consists of one batch of trades of the length specified as input. The generator can execute from 1 to 500 such simulations enabling you to see many possible outcome paths.

For number of simulations greater than 1, the generator displays a table of summary results for each simulation that includes number of profitable and unprofitable trades and the accumulated gains and losses.

Display Chart of Trades - One Simulation

If the number of simulations is 1, the generator displays a table of results and a chart showing the accumulated gains and losses after each trade.

Sensitivity Analysis

The results are quite sensitive to small changes in the probabilities of profitable and unprofitable trades. For example, just a slight increase in the probability of a profitable trade from 0.5 to 0.52 noticeably increases the number of profitable trades and positive payouts.

Vary the number of total trades and number of simulations to get a feel for trading results for different probabilities and payouts.

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