Simulation as a tool for tuning strategy and money management

[noriav]

Hi all,

My name is Nori and it's my first post in this forum.

I'm developing in the past months, a mechanical trading system based on Bill Williams's strategy (Trading Chaos, New Trading Dimensions etc.).

Recently I encountered few articles regarding simulating trading results in order to fine tune the money management strategy.

However , I would like to perform Price simulation and not only result simulation.

In order to accomplish this, I need the following data:

- What distribution type is representative for Forex ? (e.g. Normal, Log-Normal, etc.)
- How can I determine the distribution parameters (e.g. mean, stdev etc ) - perhaps by using historical daily data ?
- What other characteristics I need to simulate beside price , in order to have a more realistic scenario - for example: range, volatility etc.

- Does anybody know of a computerised tool that can be used for both writing a trading system and testing it using monte carlo simulation for simulating various Price scenarios ?

I'll appreciate any answers .

Regards,
Nori

 

[A Dashing Blade]

- What distribution type is representative for Forex ? (e.g. Normal, Log-Normal, etc.)
- How can I determine the distribution parameters (e.g. mean, stdev etc ) - perhaps by using historical daily data ?

Hi Nori

Before assuming anything at all about the distribution characteristics of any market, you may want to splash out £7 or so & buy "The (Mis)behaviour of Markets: A Fractal View of Risk, Ruin and Reward"
http://www.amazon.co.uk/exec/obidos/search-handle-form/203-1484276-1463163

 

[Tuffty]

Nori,

The book by Chande - "Beyond Technical Analysis" has a chapter on making Synthetic Data (using sampling with replacement) which you may find useful.

My own view point on this is that making up prices so they have the statistical look and feel of market price is dangerous. Personally I don't and wouldn't do this as I just wouldn't trust the modelled results to represent anything in the real world.

Cheers, Tuffty.

 

[TWI]

- Does anybody know of a computerised tool that can be used for both writing a trading system and testing it using monte carlo simulation for simulating various Price scenarios ?

If you use trade station you can add on Rina Systems portfoliostream. A cheaper option is to use prosizer from here
http://unicorn.us.com/trading/prosizer.html

 

[noriav]

Thanks all for the information

Thanks all for the information - I will follow the provided links.

Thuffly, I'm also not sure what will be the modeling quality, however, I may be able to at least simulate some worst case scenarios and thus be able to develop some defense strategy against those.

Cheers,
Nori