tradethinkBlogStart free

R-Multiples: The Best Way to Measure Your Trades

What R-multiples are, how to calculate them, and why measuring trades in units of risk makes your results comparable, honest and easier to improve.

By the TradeThink team3 min read

R-Multiples: The Best Way to Measure Your Trades

A $300 profit sounds good. But was it a $300 profit on $100 of risk or on $1,000? R-multiples answer that question by measuring every trade in units of what you risked. The idea was popularized by Van K. Tharp, and it is one of the most useful habits a trader can adopt.

The definition

R is the amount you planned to risk on a trade: the distance from entry to stop, times your size.

R-multiple = Profit or loss ÷ Initial risk

Examples, with $200 of planned risk:

  • Profit of $500 = +2.5R
  • Loss of $200 = −1R
  • Loss of $450 = −2.25R (the stop was not respected, or the price gapped)
  • Profit of $60 = +0.3R

Why R is better than dollars

  • Comparable across sizes. A trade on a small account and one on a large account can be compared directly.
  • Shows discipline. Losses larger than −1R reveal moved stops, gaps or oversizing.
  • Shows exits. If your winners average +0.6R, you are cutting winners early.
  • Feeds every key metric. Your average R per trade is your expectancy in R.
A typical R distribution: many −1R losses, a cluster of small wins and a tail of larger winners.
A typical R distribution: many −1R losses, a cluster of small wins and a tail of larger winners.

Reading your R distribution

Plot all your trades by R-multiple. A healthy distribution often has:

  • Losses clustered at about −1R, with very few beyond −1.5R.
  • A spread of winners, with some at +2R or more.

Warning signs:

  • Losses spread out to −2R, −3R and beyond: stops are not being honored, or gaps are hurting you.
  • No winners beyond +1R: exits are too early, or targets too close.

What you need

To calculate R, you need the planned stop for each trade. Record it at entry. Without it, you cannot know your risk. If you trade without fixed stops, you can use a consistent proxy, such as a fixed dollar amount, but a real stop is better.

System quality

Once your trades are in R, you can calculate the System Quality Number, which combines the average R and its consistency into one score. See also the risk-reward ratio.

In TradeThink

Record a stop for each trade and TradeThink calculates its R-multiple, then shows your average R, expectancy and R distribution in the statistics. Filters let you compare R by setup, so you can see which setups have a real edge.

More on risk management