What an R-multiple tells you
“R” is your initial risk on a trade: the amount you would lose if the original stop-loss were hit. An R-multiple divides the actual result by that amount. A trade that risked 200 and made 500 is a +2.5R trade. A trade that risked 200 and lost 200 is −1R.
Because every trade is measured against its own risk, R-multiples let you compare a small forex scalp with a large stock swing trade on equal terms. Account size, position size and currency all drop out — what remains is how well the trade paid relative to what it risked.
R-multiple formula
Always use the initial stop, even if you later moved it. R measures the result against the risk you accepted when you entered; using a trailed stop would make the denominator meaningless.
Worked example
- You buy 10 shares at 100 with an initial stop at 95. Initial risk = 5 × 10 = 50.
- You sell at 115. Gross P/L = 15 × 10 = 150, which is +3R gross.
- Commissions total 5. Net P/L = 145, so the trade is 145 ÷ 50 = +2.9R net.
In money mode the same trade is simply initial risk 50, P/L 150, fees 5. Both modes give identical answers; use whichever matches the data you have.
Average R and expectancy
Once you have a series of R-multiples, their average is your system's expectancy — the average amount you make per trade for every 1 unit risked. An average of +0.4R means that, over many trades, each trade has returned 40% of its risk on average.
Expectancy turns directly into money: risk 100 per trade with +0.4R expectancy and 100 trades, and the expected result is about +4,000. That is why R-based thinking is the bridge between trade quality and position sizing — sizing scales R into currency.
Small samples are noisy. Ten trades say very little; most traders want at least 30 to 50 before drawing conclusions, and more for low-win-rate strategies whose results depend on rare large winners.
R-multiple vs risk/reward ratio
They use the same units but answer different questions. The risk/reward ratio is a plan: a 1:3 setup aims for +3R. The R-multiple is the outcome: maybe you exited early at +1.4R, or the stop slipped and you lost −1.2R.
Comparing the two over time is one of the most useful things a trader can do. If you consistently plan +3R but realise +1.2R on winners, your exits — not your entries — are where the edge leaks.
Common mistakes
- Recording trades without a defined initial risk. If there was no stop, there is no R. Trades without a stop can't be compared and usually hide the largest losses.
- Ignoring fees. On short-term trades, commissions and spreads can cost 0.1R–0.3R per trade — enough to turn a positive expectancy negative.
- Treating −2R losses as bad luck. Losses larger than −1R mean the stop was missed, gapped or widened. They deserve their own review.
- Judging a system by its total R alone. Look at the distribution: a high total driven by one +15R outlier is a very different system from steady +1R to +2R winners.