A positive edge is not the same as surviving
Two traders can have exactly the same win rate and the same reward-to-risk, and one of them ends the year up while the other is out of the game. The difference is almost never skill. It is how much they risked per trade when the inevitable losing streak arrived, and whether they had enough account left to still be there when the edge came back.
What the simulator actually does
It plays your system three thousand times. Each trade is a coin weighted to your win rate; a win pays your reward multiple, a loss costs 1R, and position size compounds on the balance that remains. If an account falls through your ruin threshold, it stops - the way a real one does. What you get back is not a prediction, it is a distribution: the lucky path, the median path, and the one that ends it.
Read the drawdown line, not just the ruin number
Most traders fixate on the probability of ruin and skip the typical worst drawdown. That second figure is what you will actually have to live through. If the median winning path still dips 22% at some point, then a 22% dip is not evidence the system is broken - it is evidence the system is normal. Knowing that in advance is what stops you abandoning a working plan at the worst moment.
Turn the output into rules
If ruin is above a few percent, halve your risk and run it again - the fix is almost always sizing, not strategy. Then set the size properly with the position size calculator, check what climbing out would cost in the drawdown recovery calculator, and keep the pre-trade checklist open while you trade.
What risk per trade does to survival
Same system every row: 45% win rate, 1:2 reward to risk, 200 trades, ruin defined as losing half the account. Only the risk setting changes.
| Risk per trade | Typical worst drawdown | Outcome |
|---|---|---|
| 0.5% | about −8% | Ruin effectively zero, slow growth |
| 1% | about −15% | The standard compromise |
| 2% | about −28% | Survivable, but most people stop following rules here |
| 3% | about −40% | Ruin becomes a real probability |
| 5% | about −60% | The edge no longer matters |
Run your own numbers above rather than trusting these, because they move with win rate. The shape, however, does not: danger rises far faster than risk per trade does.
Read the drawdown line, not just the ruin number
Most traders fixate on the probability of ruin and skip the typical worst drawdown. That second figure is what you will actually live through. If the median winning path still dips 22% at some point, a 22% dip is not evidence the system is broken, it is evidence the system is normal. Knowing that in advance is what stops you abandoning a working plan at the worst possible moment. The arithmetic of climbing back out is on the drawdown recovery calculator.
Be pessimistic about your own inputs
Almost everyone types an optimistic win rate into a tool like this. Run it once with your believed figure and once with five points less, and size for the second result. If the system only survives at your best estimate, it does not survive. The trading journal replaces the estimate with a measured number after thirty trades or so, which is when the simulation starts being about your trading rather than your hopes.
Frequently asked
What is risk of ruin?
The probability that a run of losses takes your account below a level you consider dead, often a 50% drawdown, before your edge has time to work. It depends on win rate, reward-to-risk, risk per trade and the number of trades. Of those, the one you fully control is risk per trade.
Why does risking 2% instead of 1% matter so much?
Because losing streaks compound. Doubling risk per trade does not double the danger, it multiplies it: the same streak now cuts twice as deep and each recovery starts from a smaller base. In most simulations, moving from 1% to 3% turns a comfortable system into one with a meaningful chance of ruin over a few hundred trades.
How long can a losing streak be?
Longer than feels possible. With a 45% win rate, eight losses in a row happen roughly once every 400 trades, which is one normal year of active trading. Any risk setting that cannot survive eight consecutive losses is not a risk setting, it is a countdown.
What is a Monte Carlo simulation?
Running the same system thousands of times with randomised trade order to see the range of outcomes rather than one path. A backtest shows you what happened once. A Monte Carlo shows you what could have happened, including the unlucky sequence that ends the account, which is the only version that matters for sizing.
What risk of ruin is acceptable?
Under 1% over your expected trade count is the usual professional target, and many desks aim far lower. Anything above 5% is a plan with a trapdoor in it, because the trapdoor will be opened eventually by ordinary randomness rather than by any mistake you make.
Is this simulation realistic?
It is an honest model of one thing: randomness around a fixed edge. It assumes your win rate and reward-to-risk are accurate, that trades are independent, and that you follow the rules every time. Real trading adds fees, slippage, correlated losing days and human deviation, all of which make real numbers worse, never better.
Why does the result change each run?
Because each run draws new random sequences. If the probability of ruin swings a lot between runs, your sample is small or the system sits near a threshold. Run it several times and use the worst result you see, not the best.
What should I do if my risk of ruin is high?
Halve the risk per trade and run it again. Sizing is the fastest lever and almost always the real problem. Improving win rate or reward-to-risk is slower, harder and depends on the market cooperating; cutting risk per trade works immediately and depends on nobody.
Trading is high risk and most retail accounts lose money. This tool is education only, not financial advice.