Algo Q&A by Kevin J. Davey
WHAT IS “RISK OF RUIN,” AND HOW DO I AVOID IT?
I have a trading system that has a great backtest, so I am confident in its ability to make money. But a trader friend said I should be worried about “risk of ruin”—why?
One of the most misunderstood things about good trading is the need for sufficient capital to run your trading system. I discussed account sizing in this column last month, but I think it is worthwhile to expand on the concept of “risk of ruin” ...