Advanced Risk Simulation (ARS)

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Advanced Risk Simulation (ARS) | Monte Carlo Risk Strategy | TradingSimuLab
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Advanced Risk Simulation (ARS)

A robust Monte Carlo-based strategy that quantifies risk, reward, and probability using advanced statistical and machine learning techniques for realistic scenario analysis.

How ARS Works

Two Levels of ARS Analysis

When you run ARS, you instantly see a Fast ARS result—a quick, approximate simulation shown while your full analysis is running. In the background, a Deep ARS analysis starts automatically (no need to request it). This takes a few minutes and uses full GARCH modeling and machine learning for the most robust, research-grade results. When your Deep result is ready, the app will display a Deep Analysis label. The Fast ARS is just a temporary preview and is replaced by the Deep result.

Monte Carlo Simulation Engine

Simulates thousands of possible price paths using historical returns, volatility, and advanced models (including GARCH and fat-tailed distributions) to capture real-world risk and uncertainty.

Risk-Reward Factor (RRF)

Calculates the ratio of expected gains to expected losses, adjusted for probability and downside risk (CVaR), providing a single score to compare opportunities.

Probability & Drawdown Metrics

Estimates the probability of gain, expected value, and potential drawdowns (average and worst-case), plus Value-at-Risk (VaR) and Conditional VaR for robust risk assessment.

Machine Learning & Regime Detection

Uses Random Forests and volatility clustering to adapt to changing market regimes, improving scenario realism and confidence intervals. Note: Machine learning is used for regime detection and scenario analysis, not for autonomous trading or decision-making.

ARS Risk-Reward Factor (RRF) Interpretation

≥ 3.0 Exceptional risk-reward profile
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Outstanding Opportunity: Indicates a scenario where the expected reward is at least three times the expected risk, with high probability of gain and favorable drawdown metrics. Rare and highly attractive for risk-managed strategies.
2.0 – 2.99 Excellent risk-reward
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Excellent Profile: Suggests a scenario with strong upside potential relative to risk. Suitable for confident trend or swing trades with prudent risk controls.
1.5 – 1.99 Good risk-reward
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Good Setup: Indicates the expected reward is significantly greater than risk. Still favorable, especially with supporting signals or strong probability of gain.
1.0 – 1.49 Neutral risk-reward
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Neutral: The expected reward is close to the expected risk. Caution is advised; consider additional confirmation or risk management.
0.75 – 0.99 Weak risk-reward
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Unfavorable: The risk outweighs the reward. These scenarios often have low probability of gain or high drawdown risk. Best avoided or used for contrarian strategies.
0.5 – 0.74 Poor risk-reward
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Adverse Conditions: Indicates high risk, low reward, or negative expected value. These conditions typically favor defensive or hedging strategies, not trend following.
< 0.5 Very poor risk-reward
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Very Adverse: Indicates very high risk, very low reward, or negative expected value. These conditions are best avoided for most strategies.

Why Use Advanced Risk Simulation?

  • Captures real-world risk with thousands of simulated scenarios
  • Quantifies both upside and downside with clear metrics (RRF, probability, drawdown, VaR/CVaR)
  • Adapts to changing market regimes using machine learning and volatility clustering
  • Provides actionable confidence intervals and price ranges
  • Works for stocks, crypto, forex, ETFs, and more
  • Educational, transparent, and based on robust statistical science

Ready to Try Advanced Risk Simulation?

Experience ARS in our educational trading app and see your risk and reward like a pro

Download App & Try ARS
Educational purposes only
All strategies are for learning and simulation. No financial advice provided. Market data refreshes on app reload. Past performance does not guarantee future results.