Learn / Risk & Position Sizing
What is an R multiple?
An R multiple expresses a trade’s result as a multiple of the amount you risked on it. One R is the distance from your entry to your stop — so a trade that made three times what it would have lost is a 3R win, whatever the position size or the instrument.
The unit sounds like bookkeeping. It is actually the thing that lets you evaluate your decisions separately from your sizing, which is otherwise surprisingly hard.
The definition
1R = |entry − stop| (per unit)
result = profit or loss ÷ 1RA trade entered at 100 with a stop at 96 has 1R = 4. Exiting at 112 is +3R. Being stopped out is −1R. Exiting at 102 is +0.5R.
Note that R is defined by the stop, not by the target. The target determines the planned R; the exit determines the realised one, and they are frequently different.
Why currency is the wrong unit
Two trades: one made $400, the other made $150. Which was the better decision?
You cannot say. The $400 trade might have risked $800 and the $150 trade risked $50. In R, that is +0.5R against +3R, and the ranking reverses.
This is not a contrived example — it is what happens whenever position size varies, which it should, because size is set by stop distance. A wide stop means a small position and a narrow one means a large position for the same risk. So currency results are contaminated by sizing decisions, and R strips that out.
R measures the quality of the trade. Currency measures the quality of the trade multiplied by how big it happened to be. The first is what you can improve deliberately.
What R buys you
Comparability across instruments. A 3R trade in one market is directly comparable to a 3R trade in another, despite different prices, volatilities and contract sizes.
A win rate that means something. “I win 45% of my trades” is uninterpretable on its own. “I win 45% at an average +2.1R and lose 55% at an average −0.9R” is a complete description, and you can compute what it is worth.
Expectancy. The single number that summarises a strategy:
expectancy = (win rate × avg win in R) − (loss rate × avg loss in R)Positive means the approach makes money over enough trades. Negative means it does not, however good the last few felt.
A separation of concerns. Given a positive expectancy in R, the question of how much to risk per trade is a separate decision, made with the position size calculator and your own tolerance for drawdown. Mixing the two is how people conclude that a sound approach does not work because they sized it badly.
Break-even win rate
For a strategy with a planned R, the win rate required to break even is:
p = 1 ÷ (1 + R)| Planned R | Break-even win rate |
|---|---|
| 1R | 50% |
| 1.5R | 40% |
| 2R | 33% |
| 3R | 25% |
| 5R | 17% |
This is the table that stops “always take 3R setups” from sounding like advice. A 3R target only needs a 25% win rate — but it is also further away, so it is hit less often. The ratio and the win rate move together, and only their combination tells you anything. The risk/reward calculator computes both from your own numbers.
Where realised R goes missing
Planned R is an upper bound. The gap between it and realised R is worth measuring, because it is usually larger than people expect and always in the same direction:
- Fees on entry and exit, charged on notional rather than on profit.
- Slippage, which widens the effective stop distance and narrows the effective target.
- Partial exits, which cap the upside while leaving the full −1R intact on losers. This is the big one for most people — taking half off at +1R and stopping the rest at break-even produces a much lower average win than the plan assumed.
- Stops moved. A stop widened mid-trade means the loss is more than 1R, and the denominator you are dividing by is no longer the one you risked.
That last point matters for the integrity of the whole system. If you move your stop, R stops meaning anything, because the unit itself has changed. A recorded −1.8R “loss” from a widened stop is not comparable to a −1R loss from a respected one.
Using it
Record two numbers per trade: the planned R at entry, and the realised R at exit. That is enough to answer:
- Is my expectancy positive, and over how many trades?
- Is realised R systematically below planned R, and by how much?
- Are my winners actually the size I thought, or am I cutting them?
- Do particular setups have different R profiles?
None of these questions can be answered from a currency P&L, because it mixes selection with sizing. Both are worth improving; they are improved by different actions.
FAQ
What does 3R mean?
That the trade made three times the amount you had at risk. If your stop represented a $200 loss, +3R is a $600 gain. The point of the unit is that this holds regardless of the instrument or the position size, so results from different trades are directly comparable.
Is a higher R always better?
No, because R and win rate trade against each other. A more distant target improves R and reduces the probability of reaching it. The number that combines them is expectancy — (win rate × average win in R) minus (loss rate × average loss in R) — and it is the one worth optimising.
What happens to R if I move my stop?
The unit changes, and with it the comparability that made R useful. A loss taken at a widened stop is larger than 1R, and averaging it with properly-sized results produces statistics that describe nothing. If you find yourself moving stops often, that is worth recording as its own metric rather than absorbing into the R figures.
Should I count fees in R?
Yes, if you want realised R to reflect what happened to your account. The cleanest approach is to compute R from gross prices for planning and from net proceeds for results, then track the gap — it tells you how much of your edge costs are consuming, which the trading fee calculator can put in context.