Risk of Ruin Calculator

This calculator estimates how likely your trading system is to reach a specified drawdown level over a series of trades. It uses your win rate, average profit-to-loss ratio, risk per trade, number of trades, and the maximum drawdown you want to test.

The output shows two probabilities:

• Risk of peak-to-valley drawdown – the chance of hitting that drawdown level measured from an equity high to a subsequent equity low.

• Risk of ruin – the chance of your account falling to that same drawdown level from the starting equity.

It is not about one individual trade. It shows what can happen over many trades if you keep trading with the same statistics and risk settings.

Before you use this tool, you need to place trades and collect statistics.

We recommend completing at least 50 trades (the more the better). You can do this on a demo account if you are still practising.

You need to collect:

• Win rate % – how many of your trades are profitable. (Example: 50 profitable trades out of 100 = 50% win rate.)

• If you use multiple take-profit levels and open several trades on each setup, count the whole setup as one trade and pull the average P&L/Risk-Reward-Ratio.

• Average profit / loss – this is your average risk-to-reward ratio. You can calculate it by dividing your average profit per winning trade by the average loss per losing trade.

For example, if your average win per trade is +$200 and your average loss per trade is -$100, your average profit/loss ratio is 200/100 = 2.

• Risk per trade % – the percentage of your account you typically risk on each trade (for example, 1% or 2%).

This tool requires you to use a fixed risk model. If you risk random amounts from trade to trade, the results will not be reliable and you should consider improving your risk management strategy.

• Number of trades – how many trades you want the simulation to run (for example, 100 or 500). This does not need to match your historical sample exactly; it is simply the horizon over which you want to test your system.

• Max drawdown % – the drawdown level you want to test (for example, 20% or 30%). This does not need to be based on your past drawdowns; it is the loss threshold you consider to be “too much” and want to measure the probability of reaching.

1. Enter your Win rate % based on your journal.

2. Enter your Average profit / loss ratio (average risk-reward ratio).

3. Enter your typical Risk per trade %.

4. Set the Number of trades you want to simulate (for example, 100).

5. Enter the Max drawdown % you want to test (for example, 30).

6. Press Calculate.

The calculator will then show: Risk of peak-to-valley drawdown and Risk of ruin

Both are calculated using a large number of simulated trade sequences (for example, 100,000 iterations)

Risk of peak-to-valley drawdown is the probability of your equity dropping by the chosen drawdown % (for example, 30%). It is measured from any equity high to a subsequent low at any point during the simulation.

Example: You start with $1,000. You grow your account to $1,400, but then then you lose several trades in a row and your equity drops to $980. That’s a 30% drawdown from the peak ($1,400 → $980).

If you entered 30% in the calculator and the result says Risk of peak-to-valley drawdown = 40%, it simply means: there is a 40% chance that at some point your account will experience a 30% drawdown.

Risk of ruin is the probability of your equity falling from the starting balance down to the chosen drawdown level (for example, a 30% decline from the starting amount).

Example: Starting balance: $1,000. 30% drawdown level: $700

If the calculator says Risk of ruin = 15%, it simply means there is a 15% chance your account will fall to $700 at some point.