Luck test (Monte Carlo permutation test)

A luck test re-runs a strategy on hundreds of shuffled versions of the market to estimate the chance its result is just luck — reported as a p-value.

A good-looking equity curve can be luck wearing a costume. A Monte Carlo permutation test attacks that doubt directly: it shuffles the time order of the market — preserving each stock's return distribution and the cross-sectional correlation, but destroying temporal structure — rebuilds prices, and re-runs the strategy hundreds of times.

The reported p-value is the fraction of shuffled markets on which the strategy did as well or better than on the real one. A high p-value means the result is statistically indistinguishable from luck. It is often the single most important number a backtest can show, and the one almost nobody posts.

Definitions are educational and consistent with Thuztra’s backtest methodology. Backtests are research, not investment advice; past performance does not predict future results.