WickCheck / Trading school / Risk of ruin
Risk of ruinAdvanced
The chance a run of losses wipes out an account or breaks a loss limit.
What it means
It depends on win rate, average win and loss, and risk per trade. With 1% risk a 10-loss streak costs about 10%; with 3% it costs about 26%. Monte Carlo tests in WickCheck show how likely such streaks are.
How to spot it
- Look at the worst losing streak and the 95th percentile drawdown.
Common mistakes
- Assuming the backtest's worst streak is the worst possible.
Related terms
DrawdownThe fall from an account's peak to its lowest point before a new peak. Max drawd…Position sizingChoosing the trade size so a stop-out costs a fixed amount, usually a small % of…ExpectancyThe average result per trade, usually in R. Positive expectancy means the strate…
Why most strategies need a human behind the screen
Read the lessonWhat a mechanical test can and cannot tell you about smart money concepts.
Education only, not financial advice. Definitions vary between teachers; these are ours, written for clarity.