The Language of Money by Walter T. Downs, PhD
Here is a formula for calculating risk of ruin that can be used to make intriguing mathematical projections of the forex gambit.
IN my previous article, I presented the forex gambit. I made some suggestions for systems and analysis and presented some results that were intriguing. But is that all that can be said about the subject? Hardly! In this article, I will discuss risk, the essential language of money. Here’s a possible formula for calculating risk of ruin, and then I’m going to use that formula to make some mathematical projections for the forex gambit.
I will start by defining risk of ruin (Ror). In its simplest form, Ror is the probability of an account going to zero given various variables.
In his 1992 Stocks & Commodities article “Appreciating The Risk Of Ruin,” Nauzer J. Balsara suggested that the variables for calculating Ror should be:
p = Probability of success
k = Percentage of capital
exposed to trading
W = Payoff ratio
Nauzer then ran several simul- ations and produced some tables listing the various probabilities of Ror, given the input variables mentioned.