Risk of Ruin

We've just published a new T2W article called "Risk of Ruin" by John Ansbacher.

Quick Summary: You may have heard it talked about, but exactly what is the 'Risk of Ruin?' In this article we look at the mathematics behind it and how you can avoid it by using money manangement effectively.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.

while I appreciate author's good intentions (and knowledge) there are some objections. Kelly and shown risk calculating may be suitable for fixed-odds betting, but trading is unfortunately more complicated environment and cannot be 'mathematicized'. For example, one may have less than 50% succesfull trades and still be ahead (because he will gain more when right than lose when he is wrong). Also Kelly in trading is somewhat elusive because it is exact science, while trading is highly unstable environment where rules slightly change all the time. I experimented with Kelly alot and found no use of it on stock/forex mkt.

Another, risk of ruin calculation is also something suited for fixed-odds environment. In trading, if one uses fixed percentage MM, every loss will be smaller in terms of money so risk of ruin is theoretically non-existent. When we add that experienced trader rarely faces more than 8 losses in a row, our chances are even better. Trading cannot be painted or comprehended by using black-white only formulas.