Hello guys,
In one of the books I`m studying related to trading and finance, I have come across a table called; The probability of Ruin Matrix.
The author does not mention where he got it from. He might have made it himself, but I`m guessing he got it somewhere else. Here it is:
Profit/Loss Ratio - P/R
Winning Percentage - % Win
Please see the table below:
Code:
% winner
P/R 30% 40% 50% 60%
__________________________________
1:1 99 88 50 12
2:1 74 14 2 0
3:1 23 5 1 0
4:1 14 5 1 0
* Ruin is defined as a 50% drawdown from starting equity
What this table tells us is that if we for example have 40% winners with a 2:1 P/R ratio, the probability of ruin is 14%.
I guess this translates to a probability of 14% that we will experience 60 losers in a row.
What I want to ask you guys is if you have any clue how to calculate this formula/table?
I am making an excel sheet where I want to find the probability of ruin and its
relation to account size, different P/R ratio, different W/R ratio, etc.
That`s why I need the formula.
Thank you all very much in advance!
Best regards,
Trader
