Monte Carlo Simulation for Prop Firm Risk Assessment

Monte Carlo simulation is a powerful technique for assessing the probability of passing a prop firm evaluation. Let's build one in Python.

The Problem

Before starting a prop firm evaluation, you want to know: "Given my win rate and average risk-reward, what are my chances of hitting the profit target without exceeding the drawdown limit?"

Building the Simulation

import numpy as np
import matplotlib.pyplot as plt

def monte_carlo_prop_sim(
    initial_balance=50000,
    profit_target=3000,
    max_drawdown=2500,
    win_rate=0.55,
    avg_win=200,
    avg_loss=150,
    num_trades=100,
    num_simulations=10000
):
    results = {'pass': 0, 'fail_drawdown': 0, 'fail_target': 0}

    for _ in range(num_simulations):
        balance = initial_balance
        peak = balance

        for _ in range(num_trades):
            if np.random.random() < win_rate:
                balance += avg_win
            else:
                balance -= avg_loss

            peak = max(peak, balance)
            drawdown = peak - balance

            if drawdown >= max_drawdown:
                results['fail_drawdown'] += 1
                break

            if balance >= initial_balance + profit_target:
                results['pass'] += 1
                break
        else:
            results['fail_target'] += 1

    return {k: v/num_simulations*100 for k, v in results.items()}

Interpreting Results

With typical prop firm parameters:

• Win rate: 55%
• Average win: $200
• Average loss: $150
• The simulation shows approximately 60-70% pass probability

Optimizing Your Approach

Key insights from Monte Carlo analysis:

1. Win rate matters less than you think - A 50% win rate with 2:1 R:R beats 70% with 1:1
2. Position sizing is crucial - Smaller positions = higher pass probability
3. Drawdown type matters - EOD trailing gives more room than intraday

Finding the Right Firm

Different prop firms have different rules that affect your Monte Carlo outcomes. PropFirmKey lets you compare drawdown rules, profit targets, and other parameters across all major futures prop firms.

Use their comparison tool to find firms with rules that match your trading statistics.