R-Multiple: Measuring Every Trade Against the Risk You Took

Dollar profit is a poor way to grade a trade. A $400 winner on a position where you risked $200 and a $500 winner where you risked $1,000 look similar on a statement, and they are nothing alike: the first made twice what it put at risk, the second made half. R-multiples put both on one scale.

What R is

R is your initial risk per share. On a long trade, it is the entry price minus the stop price. On a short trade, it is the stop minus the entry.

It is fixed when you enter. Moving the stop later does not change the R you measure against, because the point is to compare the outcome with the risk you actually accepted at the start.

Working out an R-multiple

The share count never enters the calculation. Buy 100 shares or 1,000 and the trade is still +2.5R or -1R. That is the whole appeal.

A trade closed between the stop and the target gets a fraction. Sell at $31 and you made $1 on $2 of risk. That is +0.5R. A gap through your stop can produce a loss larger than 1R, and the journal should record it that way, because pretending every loss was exactly -1R hides the cost of gaps and slippage.

Planning with R

R works before the trade too. With the entry at $30 and the stop at $28, a target at $35 is a planned +2.5R, and you know that figure before any money is on the line. Some traders skip setups that offer less than a set multiple. The threshold is a personal choice. Write it down anyway, so that months later the journal can show whether the targets you set were realistic or whether most of your winners were closed well short of them.

Why use it

R lets you compare trades of different sizes and prices on one scale, so a $12 stock traded with a $0.50 stop distance and a $300 stock traded with a $15 stop distance can sit in the same spreadsheet and be judged together. It also separates two skills that dollar results blur. Picking good trades shows up as a positive average R. Sizing them shows up in how many dollars each R was worth, and the swing trade risk calculator handles that side by turning a dollar risk and a stop distance into a share count.

R is handy in a prop firm evaluation. Daily loss limits and drawdown rules are usually stated in dollars, so fixing the dollar value of 1R tells you the length of a losing streak your account can survive before a rule is broken. Passing a prop evaluation slowly builds on that arithmetic.

Expectancy in R

A record in R tells you what the average trade is worth.

A trader who loses more often than they win can still come out ahead. This record makes about four-tenths of the initial risk per trade, on average, across many trades, so if 1R is $200 the average trade is worth about $80 before commissions, with a lot of variation from one trade to the next.

The number is only as good as the sample behind it. A dozen trades can produce any expectancy at all through luck, and a strategy measured over a strong month may look very different over a full year.

The journal column

Add a column for R to every trade you log. Record the entry, the stop at entry, the exit and the result in R, and include the trades you would rather forget, since leaving losers out is the fastest way to make a journal lie to you.

After a few dozen trades, sort by R. The biggest winners and the losses beyond -1R tell you most about your process. Look too at trades that sat for weeks and closed near 0R. They are the problem swing trades need a time stop sets out to fix.

What people get wrong

The usual mistake is measuring R against a stop that was never really there. No stop at entry means no R. Assigning one afterward flatters the result. Another is widening the stop mid-trade. The loss then goes in the log as -1R. Against the original plan, it was -2R.

Related terms: position sizing, expectancy, pullback entries and the risk-reward ratio. That last one is just the planned R-multiple of the target.