Drawdown & risk-of-ruin calculator

Why losses hurt more than gains help

A loss is taken from a larger balance than the gain that has to repair it. Lose 10% and you need 11.1% to get back; lose 30% and you need 42.9%; lose 50% and you need 100%. The formula is required gain = 1 ÷ (1 − drawdown) − 1.

Reading the simulation

• Expectancy is the average result per trade in units of risk (R). A 45% win rate with 1.5R winners gives 0.45 × 1.5 − 0.55 = +0.125R. Positive expectancy is necessary but not sufficient.
• Chance of a drawdown shows how often a normal losing streak reaches the depth you entered. Even a profitable strategy regularly produces deep drawdowns if the risk per trade is high.
• Worst and best 5% show the spread of outcomes from luck alone, with the same edge.

Try the default numbers with 2% risk, then with 0.5%. The expectancy is identical, but the probability of a painful drawdown falls dramatically. That is the practical argument for small, fixed risk per trade – the approach in our risk management guide.

The model assumes independent trades with fixed outcomes and no costs. Real results cluster, costs are real and past win rates are not guaranteed.