What did that trade actually return in R?
Dollars tell you how big the position was. R tells you how good the trade was. Put in your entry, stop, exit and size, and get the number that makes every trade in your history comparable.
R-Multiple Calculator
One number that makes a $40 win on a small position and a $400 win on a big one directly comparable.
This trade in R
The formula
- risk per share = |entry - stop|
- R at risk = risk per share x position size
- profit or loss = (exit - entry) x position size x direction
- R multiple = profit or loss / R at risk
What an R-multiple is, and why it beats dollars
R is short for risk. One R is the amount you had on the line when you entered: the distance from your entry to your stop, multiplied by your position size. If you buy 100 shares at $100 with a stop at $95, your 1R is $500. Every outcome after that gets measured against that $500. Exit at $115 and you made $1,500, which is +3R. Get stopped out and you lost $500, which is -1R. The point of doing it this way is that it strips out position size. A $400 win on a large position and a $40 win on a small one look wildly different in a P&L column, but if the first was 0.4R and the second was 2R, the small trade was the far better one. Dollars measure how much capital you committed. R measures how well you traded. Once your journal is denominated in R, comparisons that were previously impossible become trivial: this setup versus that one, mornings versus afternoons, the trades you planned versus the ones you improvised.
The number most traders find uncomfortable
Calculate the R-multiple on every trade for a month and one figure usually stands out: the gap between your average winner in R and the R you originally planned for. Traders routinely enter with a 3R target and close the average winner at 1.2R, because a position that went their way then paused for twenty minutes was more than their nerves could hold. That gap is not a strategy problem. The setup did what it was supposed to do. It is a behavioural problem, and it is invisible in a dollar-denominated journal because a win still shows up as a win. In R it is unmistakable, because your planned R and your realised R sit side by side and the difference has a number on it. This is also why R is the right unit for expectancy: expectancy in dollars changes every time you resize, while expectancy in R stays comparable across your whole history.
How to use R without turning it into homework
You need three things at entry: the entry price, the stop, and the size. If you cannot state all three before you click, the trade has no R, because it has no defined risk. That constraint is most of the value. After the exit, the R-multiple falls out of the arithmetic with no judgement involved, which is exactly what you want from a performance metric. Record it, and over a few dozen trades the distribution starts to tell you things. A long tail of small negative R values with occasional large positives is a trend-following profile and is fine. Frequent values below -1R mean your stops are not being honoured, which is a discipline issue rather than a strategy one. Winners clustered just above 0R mean you are cutting trades that had not yet done anything wrong.
Frequently asked questions
Anything above zero means the system makes money over enough trades. In practice, a average of +0.2R to +0.5R per trade across a large sample is a genuinely good system, because it compounds. Be suspicious of a claimed average much above 1R over a small sample: it usually means a couple of outsized winners are carrying the whole number, and the next fifty trades will pull it back toward reality.
Exactly the same way, with the signs reversed. Your stop sits above your entry, so 1R is still the entry-to-stop distance multiplied by size, and profit comes from the price falling. This calculator detects the direction automatically: if the stop you enter is above the entry price, it treats the trade as short.
Use the original stop, the one you set before entering. R is meant to measure the risk you accepted when you took the trade. Recalculating against a trailed stop flatters every result and destroys the comparability that makes the metric worth keeping in the first place.
Yes. Use the premium paid or received as the entry, your exit premium as the exit, and contracts times 100 as the size. The one thing to watch is that a long option can go to zero, so your real risk is capped at the premium even if your stop never fills - in that case the premium is your 1R.
Stop calculating R by hand
TraderLog imports your trades from Schwab or Interactive Brokers and computes the R-multiple on every one of them, so the distribution is there whether or not you felt like doing the arithmetic.