Drawdown: The Hard Truth For Every Trader
Incurring drawdown in a trader’s journey is inevitable. But hardly anyone understands how likely it is to occur. Everyone seems to assume that they will not incur a drawdown in their trading, or at least do not know how to handle it when they do. In this report, I will be breaking down the likelihood of a drawdown for a variety of different win-ratios and risk-to-rewards. This will be compared with funded challenges and how they can set you up to fail without even being aware.
For the purpose of this report, I will be using a mathematical approach, taking a variety of different win-ratios and risk-to-rewards into account. This will be done using a risk-of-ruin calculator. There are plenty of these calculators available online and a valuable resource for every trader.
What is a risk-of-ruin calculator?
What a risk-of-ruin calculator indicates to us is the probability of a specific drawdown amount occurring, as well as the risk of completely blowing an account, over a specific number of outcomes. This is useful as we can compare multiple different strategies to understand expected loss levels.
Here is a screenshot of a risk-of-ruin calculator:
