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Trade order randomisation

Shuffling the sequence of your historical trades to see how differently the equity curve could have unfolded with the same trades.

Your backtest shows one ordering of outcomes out of an astronomical number. If the five worst trades happened to cluster at the start rather than scattered through year three, your drawdown would look completely different and you might have stopped trading.

Shuffling the order 5,000 times and recording the maximum drawdown each time gives a realistic risk picture. It is common for a strategy reporting a 12% historical max drawdown to show a 95th-percentile shuffled drawdown above 20%.

The exercise also kills a bad habit: quoting the historical drawdown as the number your position size is built around. It is a single sample from a wide distribution, and it is usually on the kind side.

Related: monte-carlo-simulation, max-drawdown, risk-of-ruin, equity-curve

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Educational only, not advice. Spotted an error? Post in Site Feedback.