Risk units —usually expressed as R-multiples— place every trade on a comparable scale. Instead of looking only at how much money a trade made or lost, you compare the result with the initial risk defined before entry.
The basic idea
If you risk $100 and make $200, the result is approximately +2R. If the planned $100 risk is fully lost, that is -1R. A $50 loss would be -0.5R.
Why it is useful
Absolute money can be misleading when account size, market or exposure changes. A +$300 trade may be excellent when risking $100 or weak when risking $500. R normalizes the outcome relative to the risk taken.
What you can compare using R
- Strategies with different position sizes.
- Futures, Forex, stocks or crypto on one scale.
- Periods when account equity was different.
- Planned management versus realised management.
- Expectancy expressed as R per trade.
Initial R versus actual risk
For the metric to remain useful, define what 1R represents. The most consistent reference is usually the planned initial risk. You can then record actual risk separately when slippage, stop changes or different execution altered the realised loss.
Common mistakes
Do not change the definition of 1R from trade to trade. Do not recalculate a trade retrospectively using a stop that was never part of the original plan. The metric is useful only when the reference stays stable.