What is R-Multiple?
R-multiple (or R-multiple ratio) measures how much you made or lost relative to the amount you risked on a trade. It was popularised by trading coach Van Tharp and is now a standard metric used by professional traders and hedge funds.
The formula is simple:
R = (Exit Price − Entry Price) / (Entry Price − Stop Loss Price)
For a long trade: if you buy at $100, set your stop at $95 (risking $5), and exit at $115, your R = (115 − 100) / (100 − 95) = 15/5 = +3R.
If the trade hits your stop, R = −1R (by definition — you lost exactly what you risked).
Why P&L in Dollars is Misleading
A trade that made $500 sounds better than a trade that made $50. But if the $500 trade risked $2,000 to make $500 (0.25R) and the $50 trade risked $25 to make $50 (2R), the $50 trade was objectively a better trade.
R-multiple removes account size and position size from the equation. It lets you compare trade quality across different markets, strategies, and time periods on an equal footing.
What Is a Good R-Multiple?
- Below 1R average: Your winners are smaller than your losers. You need a win rate above 50% just to break even.
- 1R average: Break-even at 50% win rate. Barely viable after commissions.
- 2R average: You only need a 33% win rate to be profitable. Very achievable.
- 3R+ average: Elite-level risk/reward. A 25% win rate is profitable at 3R average.
The goal is to find strategies where your average winner is at least 2x your average loser. That's what the professionals call an edge.
Using R to Size Positions
Once you know your R, you can calculate exact position size for any account balance and risk tolerance:
Position Size = (Account × Risk%) / (Entry − Stop Loss)
Example: $10,000 account, 1% risk per trade ($100), entry at $100, stop at $95 ($5 risk per share → 100/5 = 20 shares).
How to Track R-Multiple Over Time
Single trades don't reveal much. R-multiple becomes powerful when tracked over 50, 100, 200 trades. Look for:
- Average R per strategy: Which setup produces the highest average R?
- R by time of day: Are your morning entries higher R than afternoon?
- R by emotional state: Do calm entries produce higher R than anxious ones?