Risk of Ruin
Risk of ruin describes the possibility that trading losses reduce capital so severely that a trader can no longer continue the strategy effectively or recover under the assumed trading process.
Why it matters to you
Increasing risk per trade can dramatically increase the damage caused by losing streaks. Trading survival is therefore not only about whether a strategy has positive expectancy. It is also about sizing positions so the account can survive normal statistical variation and periods of poor performance.
Terms that sit next to this one
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