Blackjack Risk Of Ruin Chart

The Risk of Ruin (Also called the RoR) is a statistical model in trading which quantifies the probability a trader will eventually blow up and lose all of the trading capital in their account. It measures the risk of ruin based on the metrics of a trader or systems win/loss percentage and the percent of capital exposed to loss for each trade. The risk of ruin for a trader or system is one of the most important statistics to be aware of to understand the chances of losing your whole account eventually if you trade big enough for a long enough time. Ruin happens during long losing streaks as capital is destroyed.

The main tool in risk of ruin calculations is certainly (3) r exp(-2BE/s ^2), where r is the risk of ruin, B is a bankroll, E is expected value per hand, and s is the standard deviation per hand. Versions of this equation have been presented in Blackjack Forum, Blackjack Attack, and the International Conference on Gambling. Professionals, who make a living from blackjack, will usually prefer the smallest risk of ruin possible (such as 1% or even less). If a non-professional player uses 5% risk of ruin as an acceptable risk level, in order to size his/her total bankroll and betting units, he/she needs to use the amount of his/her largest bet in the calculation. Risk: Risk given no goal and no time constraint - This is the Simple Risk of Ruin formula on Blackjack Attack page 112. The result is the risk of ruin with no limit on the number of hands and no quit point. Simply set the bankroll. Risk given no goal but a time constraint - This is the trip ruin formula in Blackjack Attack page 132. The probability of a 6-loss streak in fair coin flip is 1/64 (or 1/45 in blackjack), and a streak can begin on any hand. So, it will take only 50 fair coin flips or 36 hands of blackjack to provide a 50% risk of ruin with 6-step martingale. A 10% risk of ruin is reached in a mere 10 hands.

The risk of ruin depends on win rate and risk per trade.

Three key questions must be answered.

Risk of ruin blackjack calculator

What is your win rate? What is your risk of loss per trade? What are the odds of your longest losing streak?

The win rate is the expectancy of how many times you will have winning trades based on backtesting of a system or your historical record if you are a discretionary trader.

Your potential for risk of loss per trade is based on your position sizing and your stop loss placement. It is measured by a percent of total trading capital at risk. If you are trading a $100,000 account, with $10,000 position sizing, and a 10% stop loss on each trade then your risk of loss per trade is a maximum of 1% of total trading capital or $100,000 / $1,000 = 1%.

The longest losing streak projection is based on the odds you will eventually lose money in over and over again in a row over a large sample size of trades considering your win rate. This is called a drawdown.

The smaller the percentage of your trading capital you risk on any one trade the lower the risk of ruin.

The odds are that a trading strategy or system will eventually have a 60% win rate over a sequence of 100 trades and then see a losing streak of 10 trades in a row.

Blackjack Risk Of Ruin Charter Schools

Probability of a losing streak based on win rate.

So the most important answer for any trader is “Will you survive a streak of 10 losing trades in a row?”

Below are the drawdowns of different risk% of total trading capital starting with a $100,000 account.

Blackjack Chart Pdf

The drawdown in capital after 10 losses in a row of different total account risk%.

Keep in mind the returns needed on total trading capital after a drawdown just to get back to even.

From our look at the math above to avoid the risk of ruin it is good policy to only risk 1% to 2% of total trading capital per trade. (This is NOT position size this is risk based on stop loss placement combined with position sizing). Also a win rate of at least 50% to 60% helps limit losing streaks to a maximum of about 10 losses in a row over the long term.

Here are two formulas for calculating risk or ruin probabilities.

Risk of Ruin = ((1 – (W – L)) / (1 + (W – L)))U

W = The probability of a win.

L = The probability of a loss.

Blackjack

U = The maximum number of risks that can be taken before the trader reaches their threshold for ruin.

Blackjack Risk Of Ruin Charter

Here is another formula by Perry Kaufman:

Blackjack Risk Of Ruin Chart Interpretation

risk_of_ruin = ((1 – Edge)/(1 + Edge)) ^ Capital_Units

Blackjack Risk Of Ruin Charts

For a deeper dive into risk management for traders check out my bookThe Ultimate Trading Risk Management Guide.