It simulates winning and losing trades according to the parameters provided. The trade success is randomly produced acording to the average win/loss ratio and the probability of winning.

Playing around with the figures produces some really interesting results:

If win/loss = 2 (when you win you on average twice as much profit as you lose)

and if the probability of winning is 40%

the equity curve uniformly goes up... but sometimes with some hefty draw downs

However, if you change the probability to 30% you are guaranteed to lose in the long run with a win/loss of 2. Tweak it to win/loss of 3 and you are pretty much certain of it going up!

Its incredible what the slightest change to the parameters can have on your account!

Check it out and have a play... its really interesting!

http://www.financialpicks.com/simulator.html