Risk of ruin
Losing streaks are normal. At 2% risk, a 10-loss streak ≈ 18% drawdown (survivable). At 20% risk, 5 losses ≈ 67% drawdown (near-fatal). The math of ruin punishes over-risking exponentially.
Recovery math
A 50% drawdown needs a 100% gain to recover. A 20% drawdown needs 25%. Protecting capital IS the strategy.
Backtest checklist
- Max historical drawdown at your risk %?
- Could you survive 10 losses in a row?
- Is any single trade able to ruin you? (must be no)