Stop Loss vs Risk of Ruin: Which Should You Use?
Stop loss controls risk on a single trade — it defines your exit point and dollar risk. Risk of Ruin estimates the probability of blowing up your account over many trades. They work together: your stop loss sizing directly influences your ruin probability.
Quick Comparison
| Feature | Stop Loss / Take Profit | Risk of Ruin |
|---|---|---|
| Primary question | How much do I lose if wrong? | What's the chance I blow up over time? |
| Scope | One trade | Many trades (system-level) |
| Key inputs | Entry, stop, take profit, account size | Win rate, payoff ratio, risk per trade |
| Output | $ risk, R:R, breakeven win rate (from R:R) | Ruin probability (%), survival chance |
| Best use | Execution + trade planning | Strategy vetting + bankroll rules |
| When it fails | Doesn't account for streaks | Assumes stable win rate/payoff |
| Beginner friendly | High | Medium |
When to Use Stop Loss / Take Profit
The Stop Loss / Take Profit calculator helps you plan individual trades with precise risk control. Use it when you need to know exactly how much you're risking before entering a position.
- •You're placing a trade now and need exact $ risk
- •You need a position size that matches your risk cap
- •You're defining a take profit and checking R:R and breakeven win rate
When to Use Risk of Ruin
Risk of Ruin calculates the probability that you'll hit a predefined drawdown threshold (e.g., down 50%) over many trades. It helps you validate whether your risk-per-trade is survivable long-term.
- •You want to know if your strategy can survive loss streaks
- •You're deciding risk per trade (0.5% vs 2%)
- •You're comparing different win rate + payoff assumptions
- •You're setting rules for scaling size up or down
Which Should You Use?
If you're planning a single trade, start with Stop Loss / Take Profit. It tells you exactly how much you're risking and what R:R you're getting.
If you're evaluating whether your system survives long-term, run Risk of Ruin. It shows whether your risk-per-trade can handle inevitable losing streaks.
Best practice flow:
- Use Stop Loss / Take Profit to set per-trade risk
- Use Risk of Ruin to validate that risk level is survivable
Most traders use Stop Loss first, then validate the risk level with Risk of Ruin.
Related comparisons
Stability vs growth sizing — which fits your edge and tolerance?
Why price moves vs what you make/lose at expiration.
Market expectations vs past price movement — when to use implied volatility or historical volatility for trading decisions.
Related Strategy Guides
Frequently Asked Questions
Do I need both stop losses and risk of ruin?
Yes. Stop losses protect individual trades, but they don't tell you if your overall risk level is sustainable. Risk of Ruin fills that gap by showing whether your system can survive losing streaks.
Can a stop loss prevent blowing up?
A stop loss limits damage on one trade, but it can't prevent ruin from a long series of losses. If you risk 5% per trade with a 40% win rate, you'll eventually blow up — even with perfect stop loss discipline.
Why does risk of ruin depend on win rate?
Lower win rates mean longer losing streaks are more likely. Risk of Ruin calculates how those streaks compound against your bankroll. A 30% win rate with high payoff can still be profitable, but requires smaller position sizes to survive.
What risk per trade is "safe"?
It depends on your win rate and payoff ratio. Most traders use 1–2% per trade. Run your actual stats through Risk of Ruin to see if your chosen level keeps ruin probability acceptably low (under 5% is a common target).
If I have a high win rate, do I still need risk of ruin?
Yes. Even with a 70% win rate, a 10-trade losing streak is more plausible than it feels. Risk of Ruin quantifies this so you can size positions appropriately and avoid overconfidence.