Investoz

@ Investoz Risk Of Ruin Calculator

What is risk of ruin?

The risk of ruin is a statistical concept that matches the probability that you reach the point where it is no longer possible to recover the losses or continue. Please note that this is not the total capital in your account, as you should NEVER risk 100% of your capital.
Ideally, you should be prepared to risk 25-30% of your account as a MAXIMUM breakpoint before you need to stop trading. If that maximum is reached, review your trading plan for new goals and risk settings to determine if you can continue trading and then develop a new plan. You should never have a drawdown of 50% or more, because then you have to get 100% return, just for breaking even!

Considering that new traders are highly risk averse and have no idea of how much risk they can afford to take for each trade, they most likely end up blowing up their account. They probably did not wanted to see it as a possibility, just saw the opportunity to earn money.

Therefore, risk management is one of the key points a trader need to know well, to avoid reaching our point of destruction. This is what allows you to survive and stay in the game in order to have a greater chance of making money in the markets. Every trader must therefore calculate their chances of reaching this drawdown level. Simply put, the more you risk per trade, the more you increase the risk of destruction. So the easiest way to avoid the risk of ruin is to risk only a small portion of your account on each trade. Risk should never exceed 1-2% of the account per trade (preferably less) otherwise that path to point of destruction is where you are heading.

It is obviously not possible for a trader to make money without taking some risk, but it is imperative that he / she knows what his / her risk is and that he / she is prepared to take it. If a trader is not willing to take risks on his / her trading account, trading is not for him / her, it's that simple.

How the Risk Of Ruin Calculator works

You need to know a few things before you can use this calculator. You need to manually go to the indicator settings and make a few inputs over following:
(If you use a pine script strategy, you have all the info you need. Go to "Strategy Tester" and then "Performance Summary").

Inputs
Win rate = How profitable your strategy is in % terms.
Average win = Average winning trade, in money terms.
Average loss = Average losing trade, in money terms.
Risk per trade = How much risk of your portfolio you take at each trade.
Maximum Loss Of Portfolio = What is the total percentage loss of your portfolio that you can afford to risk before you stop trading.
Trade Capital = The total sum of your current trade capital.

Outputs
Payoff ratio = The payoff ratio is simply the system's average profit per trade divided by the average loss per trade.
Expectancy = Is the win rate of the strategy divided by payoff ratio.
Risk of ruin ( RoR ) = Risk of ruin is the probability of a strategy losing money, to the point where it is no longer possible to recover the losses or continue.

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DISCLAIMER
Any data and information is provided 'as is' solely for informational purposes, and is not intended for trading purposes or advice. Past performance is not indicative of future results.
Educate yourself on the risks associated with trading, and seek advice from an independent financial or tax advisor if you have any questions.

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Release Notes: Changed some math formula issues.
Release Notes: Small changes.
Release Notes: Code changes.
Release Notes: I want to raise a warning finger and say that what I wrote above regarding expectancy is not correct and is now edited. (Expectancy = Is the win rate of the strategy divided by payoff ratio) is not correct!
I have made two changes for expectancy in the script, one that shows expectancy in money term and the other one in ratio term.
Release Notes: Risk of Ruin formula modification. Showed wrong ROR in case of lower winrate than 50% or less.
Release Notes: Small modification.
Release Notes: Risk of Ruin formula was edited due a formula code error. Now it should work just fine. Let me know otherwise.
Release Notes: Another modification with the formula that needed to be edited.
Release Notes: Added maxval and minval on winrate, risk per trade and maximum loss of portfolio.
Release Notes: I have added numbers of trades and expectancy based on number of trades.
Protected script
This script is published closed-source and you may use it freely. You can favorite it to use it on a chart. You cannot view or modify its source code.
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Kommentarer

Tack ❤️
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Investoz Blueprintsud
@Blueprintsud, Varsågod! Det är det viktigaste verktyget man kan ha, eller det mest värdefulla för ens plånbok. Det är det enda i sitt slag här på Tradingview än så länge, och det faktum att ingen har gjort någon tidigare (det finns många duktiga programmerare) säger att risk är inte lika intressant som de bästa strategierna eller bästa indikatorerna osv. Det är svårt att lyckas. Sorgligt nog, vet de som inte lyckades, varför de inte lyckades. Med det sagt, så är det ingen garanti för att man nu inte riskerar att förlora stora delar av sin portfölj, trots att man nu har koll på risken och om ens individuella strategi har ett positivt utfall eller inte, så är man åtminstone på rätt väg och tänker annorlunda mot vad resten som inte lyckas gör. Lycka till @Blueprintsud!
Svara
@Investoz, håller med och därför är det här det absolut viktigaste verktyget!
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