Risk of Ruin
Understand how sizing, win rate, and drawdown risk interact.
Risk of ruin is the chance that losses reduce your account to a point where the strategy can no longer continue. Even a profitable strategy can fail if position size is too large during normal losing streaks. The goal is not to avoid losses; the goal is to survive the statistical reality of losses.
Risk per trade, average loss, win rate, payoff ratio, and account size all affect ruin risk. A trader risking too much can be forced out before the edge has time to appear. Smaller risk may feel slower, but it protects the ability to keep executing.
Think in streaks, not single trades. If your strategy can lose six times in a row, your size must make that survivable emotionally and financially. Professional risk management assumes bad sequences will happen and plans for them before they arrive.