How to calculate it
U is the ruin distance divided by risk per trade. A 20% ruin line at 2% risk is 10 units. If expectancy is zero or negative, risk of ruin is 100% given enough trades.
Worked through with real numbers
A strategy wins 55% of the time at 1:1. You call it ruin at a 20% drawdown.
Halving the risk per trade cut the chance of ruin from about one in seven to under one in fifty, with the same strategy and the same skill. That is the single most important idea in risk management. The risk of ruin calculator runs both the formula and a simulation for any payoff.
Where traders get it wrong
- Defining ruin as zero. Most traders stop long before that. Use your real quit line or the firm's max loss.
- Trusting a backtest win rate. If live results run five points lower, risk of ruin can multiply.
- Forgetting sizing style. Risking a % of current equity shrinks bets after losses, which usually lowers ruin when the edge is solid. Fixed dollar risk from the starting balance, common on prop accounts, keeps every loss the same size.
Tracking it in your journal
The journal does not print a risk of ruin figure. It gives you the inputs that matter, measured from your own trades: Win Rate, Avg Win R, Avg Loss R, Max Consecutive Losses and a ½-Kelly ceiling. Feed those into the calculator instead of guessing.
See your own Risk of Ruin from real trades
Every figure on this page is more useful when it is yours. The free journal works it out from the trades you log or sync.
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