R-multiples: measuring a trade in units of its own risk
“What does 1R mean, and why do people talk about a trade in R instead of dollars?”
One R is the amount risked on a trade: the distance from entry to the stop, multiplied by position size. A result expressed in R says how many times the risked amount was won or lost, which makes two trades of very different sizes directly comparable.
In short
R is the trade's own risk used as its unit of measurement. A +$450 win on a $150 risk and a +$1,200 win on a $400 risk are both +3R — the same trade, at different sizes.
How R is computed
One R is the per-unit risk multiplied by the quantity held: |entry − stop| × size × the instrument's point value. A trade's R-multiple is then its result divided by that number.
A stop at 98 on a 100 entry, 125 shares, is a risk of $250 — one R. Closing at 106 is +$750, or +3R. Closing at 98 is −1R. Closing at 99 is −0.5R: the stop was not reached, and half the risk was returned.
Why the unit matters
Dollar results are not comparable across sizes, and position size usually varies with the stop. A trader who risks a fixed percentage takes a large position on a tight stop and a small one on a wide stop; in dollars those two trades look unrelated, and in R they are on the same scale.
That is what makes an average meaningful. Expectancy in R — the mean result per trade, in units of risk — is the same number whether the account is $5,000 or $500,000, and it is the figure the sizing arithmetic actually consumes.
Where R stops working
R depends on a stop that was decided in advance and recorded. Three things break it:
- No stop recorded. There is no denominator, so the trade has no R, and excluding it quietly changes every average it would have been part of.
- A stop moved after entry. The risk that was actually taken is the original one; measuring against the moved stop reports a different trade than the one that was placed.
- A gap through the stop. The realised loss can exceed 1R, and a book that assumes losses cap at −1R will understate its own tail.
R and the break-even win rate
Because R normalises size out, a reward-to-risk ratio can be converted directly into the win rate it needs to break even: 100 ÷ (1 + R:R). A 2R target breaks even at a 33.3% win rate, a 1R target at 50%, a 5R target at 16.7%.
That conversion is what makes a ratio comparable to anything. A high reward-to-risk figure on its own says nothing about whether an approach is above water, because it says nothing about how often the target is reached.
Questions
- Is R the same as reward-to-risk?
- Related but not identical. Reward-to-risk is a ratio between two planned distances before the trade happens. An R-multiple is the realised result measured in units of that risk after it happens. A planned 3:1 trade that is closed early is a +1.4R result.
- What about a trade that was scaled out of?
- The risk is measured from the average entry across the fills, and the result is the total across the exits. A journal that stores each fill can compute both; one that stores a single entry price cannot, once the position was built in pieces.
- Should losses always be exactly −1R?
- They are not, and a book where they are is usually a book where the stop is being recorded after the fact. Slippage, gaps and partial exits all produce losses that are not exactly one R, and the distribution of those values is itself information.
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