Risk of ruin: have you calculated yours?
Risk of ruin is the probability your account blows up given your edge, win rate and risk per trade. Almost nobody calculates it, and the number is usually scarier than the trader expects.
Have you?
- the inputs you used and the result
- how the number changed your sizing
- the surprise it delivered
The drawdown guide provides the maths for the calculation.
Background: Drawdown and recovery: why a 50% loss needs a 100% gain
Losses and gains aren't symmetrical. See how much you need to recover from a drawdown, what losing streaks do at different risk levels and how to set limits.
How much do you need to gain to recover from a 50% loss?
100%. The gain needed is the loss divided by one minus the loss, so larger drawdowns need disproportionately larger gains.
What is maximum drawdown?
The largest fall in account value from a peak to a later low, before a new peak is reached, usually expressed as a percentage.
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