Risk management
What is risk of ruin in trading?
The probability your account dies before your edge pays off.
What it means
Risk of ruin is the chance a losing streak wipes out your account before your edge has time to play out. Even a profitable strategy blows up if the risk per trade is too high, because variance guarantees streaks of losses that every trader hits eventually.
What drives it
Three things: your win rate, your reward-to-risk, and how much you risk per trade. The first two set your edge. The third sets how much variance you can survive. You can have a real edge and still go to zero by sizing too big.
How to lower it
The fastest lever is risk per trade. Same edge, smaller risk, dramatically higher survival. Most survivors risk 1 to 2% per trade. Above 3%, a normal losing streak puts you in a hole that is hard to climb out of.
What your smooth brain needs to remember
Survival compounds. Blowups do not. Size so you are still here for the next setup.
Test your survival
Simulate 3,000 runs and see your odds of blowing up.