A strategy can win most of its trades and still go broke, or win a third of them and grow steadily. What decides it is the size of wins against losses, and how much you risk on each trade. Enter your numbers and the calculator runs 2,000 simulated sequences of trades to show the range of outcomes.
Expectancy
Expectancy is the average result per trade, measured in R, where R is the amount you risk. It is win rate × average win − loss rate × average loss. A 45% win rate with 2R winners and 1R losers gives 0.45 × 2 − 0.55 × 1 = +0.35R per trade: every trade, on average, earns a third of what it risks. Below zero, no position sizing can save the strategy.
Risk of ruin
Even a positive expectancy has losing streaks, and risk per trade decides whether a streak is a dent or a disaster. At 1% risk, ten losses in a row cost about 10%. At 5% risk, the same streak costs about 40%, and recovering from a 40% drawdown needs a 67% gain. "Ruin" here is a drawdown deep enough that you would stop trading the strategy, which you set above.
How to use the results
- Keep the chance of ruin near zero. If it is above a few percent, lower the risk per trade before anything else.
- Plan for the drawdown. The median maximum drawdown is what a normal run of this strategy will put you through. Decide in advance that it is acceptable.
- Be honest about your numbers. Use results from your own trade journal, not a best month. Overstating the win rate by 10 points changes everything.
- Size from the stop. Once you know your risk per trade, the position size calculator turns it into a share count.
Better setups, fewer losers
Scans built on published momentum methods, with the chart, score and catalyst for every match.
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