How to Generate Random Equity Curves to Visualize your Strategies Outcomes

This post will instruct the reader to create an excel spreadsheet that allows the user to input the core components of expectancy and generate random equity curves.

S_1 - Creating Random Outcomes

Create a sheet dedicated to processing the data, and a sheet for visualizing the data. This will make the user interface at the end clean and simple.

Use the formula =RAND() to generate a number between 0-1 in a column. Repeat that for as many "trades" as you would like to be generated in this simulator. Later this will be used to identify if the trade was a winner or looser based on win percent.

S_2 - Defining Expectancy Parameters

Next we must setup the expectancy parameters: win percent and average win/average loss. (risk factor) We must also define the account size and risk per trade. This crates the following inputs:

  • Account Balance ($)
  • Risk Per Trade ($)
  • Win Percent (%)
  • Average Win/Average Loss (R:R)

These values are all static and are used in the next column we set up to calculate the outcome of each trade.

S_3 - Calculating Outcomes

Now it is time to merge the first and second step. We have the random outcome and now must apply the win percent to determine if the trade is a win or loss, then apply the risk ratio. This looks like the following:

=IF({{RANDOME OUTCOME}}<=({{WIN %}}/100),({{R:R}}*{{Risk Per Trade}}),(-1*{{RISK PER TRADE}}))

The pseudocode for this would be: IF the random outcome is less than or equal the win percent converted into a decimal, then it is a winner and return the risk per trade times the asymmetrical risk factor. IF the random outcome is greater than the win percent converted into a decimal, then it is a looser and return the risk per trade.

S_4 - Applying the Outcome

This step is simple.. just take the outcome of that trade and apply it to the account balance the previous trade left.

=(Previous Account Balance + Previous Trade Outcome)

That's it! Now it should be plotting and tracking the account balance. From here, you can create a chart to visualize the outcomes and it F9 to generate a new set of random numbers.

This can get more advanced and account for commissions or slippage by taking off one tick per trade but I will leave that up to you to explore!

This tool can be incredibly useful for developing a strategy then testing its theoretical win percent and risk reward against a random outcome. This can also set expectations for what a normal drawdown may look like and what types of stagnation are expected.

Example of Simulators Random Outcomes