Risk of Ruin

Risk of ruin is the constraint that matters most and is discussed least, because a strategy with positive expectancy still fails if a losing run arrives before the edge asserts itself. It rises sharply with position size: risking 2% per trade makes a run of twenty losses survivable, while risking 20% makes five consecutive losses catastrophic. Long losing runs are far more likely than intuition suggests — at a 45% win rate, a run of eight losses occurs regularly over a few hundred trades. Position sizing is the only lever that controls it, which is why sizing precedes strategy selection in any serious risk framework.