By this time probably you will start to wonder what good is risk of ruin? You can't after all, do much with it for any particular trade, and it by itself won't help you generate a workable trading system.

Risk of ruin is an important parameter used to assess whatever trading system you have developed. It is like fuel economy in a car. There is little you can do about the fuel economy of your existing car, but it is a handy parameter to know about when shopping for a new one.

If you are developing a system and testing it on historical data, your computer will probably be able to tell you what size your average winning trade was, how much you lost on average when you lost, and the percentage of trades that work out well. It is not enough to know that a system made a profit, you need to run the parameters by some sort of risk of ruin filter to make sure that this really is a workable system.

If you find that your supposedly profitable trading system has a high risk of ruin, it probably isn't worth trading with. A high risk of ruin indicates that the system was "lucky", when you start putting money into it your luck may run out.

Risk of ruin is also useful for estimating whether or not a system is suitable for you to trade. One of the factors that influence risk of ruin is your original capital. You might not have enough money available in the first place to trade this system successfully based on a probable estimate of maximum drawdowns etc.

So while ROR probably won't help you develop the ultimate trading system, it will provide a theoretical rating of any system you are looking at.