UNIT 2
Risk of Ruin
Risk of ruin rises nonlinearly as bet size grows relative to capital.
Bankroll−60%+150% to recover
The chance normal losses make recovery impossible or impractical.
- Setting risk-per-trade
- Stress-testing losing streaks
- Models simplify real tails
- Correlations can jump
Assuming positive expectancy guarantees survival.
Ruin probabilities depend heavily on sizing, payoff distribution, and independence assumptions.
60-SECOND CHEAT SHEET
Remember this.
- 1Edge needs runway
- 2Big drawdowns compound
- 3Survival first