--- title: "How do I use Monte Carlo to test strategy risk | RupeeCase" description: "Monte Carlo testing redraws a strategy's trade results many thousands of times." source_url: "https://www.rupeecase.com/learn/questions/monte-carlo-strategy-risk" --- Model, not market data The same trades show a much higher share of ruined paths as the risk per trade rises Share of simulated paths that reach a loss of half the starting account, for one fixed win rate and payoff ratio, at four risk levels per trade (the inputs line below gives the first bar). Inputs are illustrative model values, not a market result. Inputs: win rate 45%, average win 1.50 times the average loss, 2% of the account risked on each trade, ruin at a 50% loss of the starting account, 250 trades, 2,000 simulated paths, seed 1. Source: RupeeCase model, seeded simulation. As of 10 Jun 2026. A backtest gives one path through the past, and the order of wins and losses shaped that path. Monte Carlo asks what other paths were possible with the same trades. It draws the trades again in random order, which keeps the total and changes the path, or resamples them with replacement, which changes the total as well. It records the result of each run. The output is a range, not a single number. A strategy with a positive average per trade can still show a deep drawdown in a large share of simulated paths, because losses come in streaks. The ruin figure is the share of paths that cross a loss level set in advance, and the sizing rule decides how often that happens. The chart is a model, not a real trade list. It draws each trade from a win rate and a payoff, risks a fixed share of the account on each one, and counts the paths that cross the ruin level. The inputs are listed under the chart, they are illustrative, and the model is seeded, so the same inputs give the same bars. Three cautions apply. The trades must be real, costed trades from a clean out of sample test, or the simulation only reshuffles a flattering history. Random order assumes the trades are independent, which regimes and expiry clusters break. And a low ruin share in a simulation describes the model, not the account. The same win rate and payoff can support very different sizes, and the bars rise steeply as the share risked nears and passes the Kelly fraction of these inputs. The size is the part the trader controls. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) How do I use Monte Carlo to test strategy risk?Monte Carlo testing redraws a strategy's trade results many thousands of times, so the spread of outcomes that the same win rate and payoff could produce becomes visible. It shows how deep a drawdown can run and how often a ruin level is crossed under a sizing rule, but it cannot tell what the next market will do. LGo deeper ## Where Learn teaches this. [Go deeperMonte Carlo and bootstrap of trade results10 min, Advanced](/learn/path-19/module-19-8-monte-carlo-and-bootstrap)[Go deeperKelly and sizing for option strategies10 min, Advanced](/learn/path-17/module-17-22-kelly-sizing)[Try itRisk of ruinWin rate, payoff and size, simulated to the chance of losing the account.](/learn/tools/risk-of-ruin) SSources ## Go to the source. 1. [SEBI, safer participation of retail investors in algorithmic trading (circular, 4 Feb 2025)](https://www.sebi.gov.in/legal/circulars/feb-2025/safer-participation-of-retail-investors-in-algorithmic-trading_91614.html) SEBI 2. [SEBI, study on F&O profit and loss of individual traders (Aug 2026)](https://www.sebi.gov.in/sebi_data/attachdocs/aug-2026/1787233506209.pdf) SEBI 3. [SEBI investor education, Understanding derivatives](https://investor.sebi.gov.in/understanding_derivatives.html) SEBI ?Questions people ask ## Related questions. 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Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. New to RupeeCase? [Getting started](/getting-started) [See the terminal](/terminal) [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.