Risk of ruin is the probability that a run of losses drops your account below a point you cannot recover from — even if your strategy is profitable on average. Edge decides whether you win long-term; risk of ruin decides whether you survive long enough to see it.
What drives it
Three things: your edge (expectancy), your win rate, and — most of all — your risk per trade. Doubling your risk per trade does not double your return; it explodes your risk of ruin, because a normal losing streak now does permanent damage.
Why streaks are longer than you think
At a 50% win rate, a run of 7-8 losers in a row is not rare over hundreds of trades — it is expected. If each loss risks 5% of your account, that ordinary streak takes you down 30-40%. Size for the streak you will definitely get, not the average you hope for.
Monte Carlo makes it visible
A Monte Carlo simulation shuffles your trade outcomes thousands of times to show the range of paths your account could take — including the bad ones — and estimates the odds of ruin. It turns ‘it should be fine’ into a number.
See your risk of ruin
Bulk Quant runs a Monte Carlo on your backtested trades and reports your risk of ruin, so you can size to keep it near zero. Test your strategy free.