What is Risk of Ruin?
Risk of ruin is the probability that a string of losses drains an account below the point where it can keep trading, even when the underlying method has an edge. It rises fast when each trade risks too large a share of the account. A real edge can still end in ruin if position sizes are too big to survive a normal losing streak.
Why Risk of Ruin matters
An edge is worthless if you size so large that an ordinary losing streak wipes you out first, which is what this measures.
Related terms
Lessons that use this term
Continue