Measuring trades in money makes results incomparable — a $40 win on gold and a $40 win on EUR/USD tell you nothing about which trade was better. Measuring in R solves this in a way that takes about five minutes to adopt and changes how you read your own results permanently.
What R means
R is the amount you risked on a trade. One unit of risk.
If you risked $50, then R = $50 for that trade. A profit of $100 is +2R. A loss at your stop is −1R.
Account $5,000, risk 1% = $50 = 1R
Trade closes +$150 → +3R
Trade closes +$50 → +1R
Trade hits stop → −1R
Trade closed early → −0.4R
The useful property: R normalises everything. A +2R trade on gold and a +2R trade on EUR/USD contributed equally, regardless of the lot sizes or pip values involved.
Why this changes your record-keeping
A trading journal in money terms is difficult to read. The account balance changes, position sizes vary, instruments differ.
The same journal in R is immediately legible.
Last 10 trades in R:
−1, +2, −1, −1, +3, −1, +2, −1, −1, +2
Wins: 4 of 10 (40% win rate)
Total: +3R
Average: +0.3R per trade
Four wins out of ten, and the result is positive. This is visible instantly in R and requires arithmetic in money terms.
It also means your results remain comparable as your account grows. A +30R year is +30R whether the account started at $2,000 or $200,000.
Risk-reward ratio
The planned relationship between what you risk and what you are targeting.
Entry: 1.0850
Stop: 1.0820 → 30 pips risk
Target: 1.0910 → 60 pips reward
Risk-reward = 1:2
The trade targets +2R
This is decided before entry, from the chart. The stop goes where the idea fails; the target goes where price is realistically likely to reach.
The relationship with win rate
The piece that resolves most confusion about what a “good” system looks like.
Win rate and reward-to-risk trade off against each other. Neither is meaningful alone.
| Reward:Risk | Break-even win rate |
|---|---|
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33% |
| 1:3 | 25% |
| 1:5 | 17% |
At 1:3, you can be wrong three times out of four and still break even. At 1:1 you need to be right more often than not.
This is why “what is your win rate?” is an incomplete question. A 70% win rate at 1:0.5 is worse than a 35% win rate at 1:3.
Systems with high win rates feel good — most trades are winners. They typically achieve this with small targets and wide stops, which means the occasional loss erases many wins. A 90% win rate at 1:0.2 loses money. The comfort of frequent small wins is genuinely appealing and genuinely unrelated to whether the approach is profitable.
The honest limits of the R:R argument
The “always use at least 1:2” advice is common and needs a qualification.
The target must be realistic. You can create any ratio on paper by setting a distant target. If price rarely travels that far, the ratio is fictional — you have a 1:3 system that achieves 1:3 on 10% of trades.
Check the target against ATR. If daily ATR is 60 pips and your target is 200 pips away, it needs more than three average days of one-directional movement. Possible, not typical.
Different approaches have different natural ratios. Scalping produces low ratios with higher win rates; swing trading produces higher ratios with lower ones. Forcing a scalping system to 1:3 usually means targets that are never reached.
The useful discipline is not “always 1:2”. It is: know your actual average R-multiple from your own records, and check it against your actual win rate.
Calculating whether a system works
The formula, which the next lesson covers in full:
Expectancy per trade, in R =
(Win rate × Average win in R)
− (Loss rate × Average loss in R)
Example: 40% win rate, avg win +2.5R,
avg loss −1R
(0.40 × 2.5) − (0.60 × 1)
= 1.0 − 0.6 = +0.4R per trade
A positive number means the approach makes money over enough trades. A negative number means it does not, regardless of how good the analysis feels.
This calculation requires a journal in R. Without one, you are guessing.
Where R-thinking helps in practice
Evaluating signals. A signal with a 30-pip stop and a 90-pip target is a 3R idea. Whether that suits you depends on your own record, not on the signal.
Comparing instruments. Gold and EUR/USD results become directly comparable.
Setting expectations. Knowing your average is +0.3R means a hundred trades should produce roughly +30R. Whether that is enough is a separate question, but at least it is a question with an answer.
Judging a drawdown. A −8R drawdown is ordinary. Knowing this in advance removes a good deal of the panic that produces further mistakes.
Evaluating changes. If you modify your approach, the R record tells you whether it improved anything. Money terms obscure this.
Partial closes and R
Worth addressing because many traders use them and they complicate the arithmetic.
Closing half a position at +1R and letting the rest run makes the outcome harder to express. The trade is not +1R or +3R; it is some blend that depends on the split.
This is not an argument that partials are wrong. It is an argument that they make measurement harder, and measurement is how you find out whether anything you do works.
Our own signals use one entry, one stop, one target and a full close for this reason. Every trade resolves to a single clean number. Over a few hundred trades that produces a record you can actually evaluate — which matters more than the flexibility given up.
Starting an R journal
Per trade, record:
Date
Instrument
Direction
Planned R:R
Outcome in R
Followed the rules? Y/N
Six fields. A spreadsheet is sufficient.
The last field is the one most traders omit and the one that reveals the most. A record showing +0.4R average on rule-following trades and −0.6R on the others tells you exactly where the problem is, and it is not the strategy.
What to do next
The next lesson covers win rate and expectancy in full — what determines whether an approach makes money, and why most traders measure the wrong thing.
Frequently asked questions
What does R mean in trading?
R is the amount risked on a trade — one unit of risk. If you risked $50, a $100 profit is +2R and a stop-out is −1R. It makes results comparable across instruments and position sizes.
What is a good risk-reward ratio?
There is no universal figure. What matters is the combination with win rate — 1:2 needs a 33% win rate to break even, 1:3 needs 25%. A high ratio with unrealistic targets is worse than a modest one that is actually reached.
Is a high win rate good?
Not on its own. High win rates are usually achieved with small targets and wide stops, so occasional losses erase many wins. A 90% win rate at 1:0.2 loses money; a 35% win rate at 1:3 makes it.
How do I know if my target is realistic?
Check it against ATR. If daily ATR is 60 pips and your target sits 200 pips away, it requires more than three average days of one-directional movement — possible but not typical, which makes the ratio fictional.
Why measure in R instead of money?
Because money results are incomparable across instruments and change as the account grows. A +30R year is +30R whether the account started at $2,000 or $200,000, and a run of results in R is immediately readable.
Do partial closes make R harder to use?
Yes. A trade closed partly at +1R with the rest running does not resolve to a single number, which makes the record harder to evaluate. A single entry, stop and target with a full close produces one clean figure per trade.