Saturday, December 1, 2007

Risk of Ruin- Chart

Found this chart earlier. It show's the probability of Risk of Ruin. Which is a concept that every trader should know and follow. It's a fairly straight forward chart, however, you won't know your Risk of Ruin unless you keep a detailed log of all your trading data. Without that, you're blind and keeping a log of your data in itself, is the best book you can read on trading, your own.

 

The left hand side shows the ratio between your average win and your average loss and the top row shows your Win Percentage. Right now I'm about 1.5 and I'm hitting 50%. So my risk of ruin is about 4%. My odds of me blowing out my account by 50% net capital loss is 4%

 

At the moment based on my current data, those are good numbers to have. Plus, the fact I have a positive expectancy should tell me that over the long run I'll be profitable while keeping the odds of a Risk of Ruin to a low odd.

 

A side not: This is based on if you do 100 trades (strong statistical data to represent the long run) and Risk of Ruin is 50%

 

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