Lean Trading Journal
Risk of ruin is a model for stress-testing a trading strategy before you increase size. Learn which inputs matter, what the result can tell you, and where its assumptions stop.
Risk of ruin estimates the probability of reaching a defined loss threshold under a set of assumptions. It does not predict your next trade, and it cannot prove that a Strategy has a durable edge.
That distinction matters because a clean backtest can still hide unstable inputs, changing market conditions, costs, slippage, or execution differences.
The model needs a win rate, a payoff relationship such as CRV, risk per trade, a starting account balance, and a definition of ruin or maximum drawdown. The number of trades or the horizon changes how much exposure the model evaluates.
Risk per trade is often the easiest lever to change. Lowering it does not improve the edge, but it can reduce the damage while you collect more evidence.
Run the same Strategy assumptions at several risk levels. Compare the probability of ruin and large drawdown, then record the chosen risk rule in your trading plan. This turns “I can probably handle it” into an explicit constraint.
Treat every output as conditional. If the win rate, payoff, trade frequency, or independence assumption is wrong, the result is wrong too.
After the risk check, document the Strategy and validate the underlying sample in Backtest Lab. When you operate it, use Trade Tracker and Edge Health to compare live behaviour with the expectation you started with.
LeanTrading provides calculators and workflow tools, not buy or sell signals. You remain responsible for validating the Strategy, choosing risk, and deciding whether to execute.
Compare risk assumptions before you change position size or a Strategy rule.