How to read the results
- Risk of ruin is the share of simulated runs that reached your drawdown limit. Treat anything above a few percent as a warning.
- Expectancy tells you whether the inputs describe an edge at all. If it is negative, no amount of risk management makes the strategy profitable.
- Median balance is the typical outcome after all the trades; half the runs did better and half did worse.
The expectancy formula
Expectancy (R) = win rate × average win (R) − (1 − win rate) × 1R
With a 45% win rate and winners 1.5 times the size of losers, expectancy is 0.45 × 1.5 − 0.55 = +0.125R per trade: a modest edge. At 2% risk per trade and a 30% drawdown limit, about 30% of runs still hit the limit within 300 trades. Cut the risk to 1% and the risk of ruin drops sharply.
Limits of the simulation
Real trading results aren't independent coin flips. Markets change, strategies stop working, losses cluster and costs eat into every trade. Use backtest and live statistics as inputs, then assume the real risk is higher. For prop firm challenges, enter the firm's maximum drawdown as the limit and read our prop firm rules guide.