The Probability of Ruin Matrix - How to calculate?

  • Thread starter Trader
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Main Question or Discussion Point

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
 

Answers and Replies

  • #2
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I thought you were the smart guys?:)
 

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