A longer period would increase the risk of drawdowns (and potentially ruin too). to estimate risk of ruin/drawdown over 100 periods for example). The “Periods” field represents the time horizon over which the simulation is run (i.e.The risk of ruin/drawdown is highly correlated to this value. The third field represent the percentage of capital risked ob every trade.In the default example set above, the system generates 40% of winners, with winners generating on average 1.8x the size of losers. The two first fields (probability of win and win/loss ratio) represent the system performance characteristics.Risk of drawdown, on the other hand, stays constant regardless of how high the equity grows, because the drawdown “capital barrier” keeps moving up in line with the equity. As the equity grows, the risk of hitting that “ruin threshold” decreases. For example, a risk of ruin at 45% is the probability that your initial capital falls to 55% of what you started with. Ruin is usually defined as a fixed capital level, representing a large percentage loss on initial capital. Risk of ruin is different from risk of drawdown. Just fill in the stats of the trading system, the test length and the level of drawdown/ruin to be tested and hit the Calculate button. Do not forget to subscribe to our newsletter to receive any new tools and articles we publish for trading systems (form on the right-hand side), or contact us for more info on our systems or how we can help with execution.īelow is a calculator that implements risk of ruin or risk of drawdown calculations based on the two methods described thereafter (the risk of ruin is calculated from both a Monte-Carlo simulation and from the formula). ![]() The risk of ruin and drawdown calculator below is a basic tool to help evaluate a simple system performance. It can also be useful to evaluate a trading system performance and risk. Calculate your risk of Drawdown and RuinĪs a futures broker specialised on trading systems, we offer a couple of options for our clients: ready-to-trade systems or execution of your own trading system.
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