2) Running Monte Carlo Simulations.

This Blog entry is from the Monte Carlo Model section in Learn Palisade.

Set the simulation iterations to a suitably large number, for example 100,000:

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Click Start Simulation to begin the simulation.  The probability density function will start to take shape:

2.png

In the above example we can determine that in all probability the market is going to move downward, in fact 90% likely to move downward between 0 and -0.7. 

The market is extremely unlikely to go up based on the last 8000 5M observations (although this could just as well indicate a correction). 

The shape of the distribution and the lack of normality would be cause for concern and lead us to reconsider promoting this model in all likelihood revisiting the validity of the model.  It is fine for the purposes of our example albeit with the caveat that the value of the optimisation and mitigation process is closely linked to the predictive performance of the model in the first instance.