If risking 1% of the account, that means on a $10,000 account you’re willing to lose $100 on a trade. A percentage can remain stable over time.
R could also be a dollar amount you are comfortable with, although I recommend this is also a percentage of your account, as over time dollar amounts tend to change as our account grows and shrinks. I typically risk 1% of my account per trade. R could be 1% of your account if you typically risk/want to risk 1%. It is a standardized amount (dollars or percentage of account) for YOU. “R” is how much you are risking per trade. If you hear me discuss trades or results, I will often speak in terms of R, such as being up 46R for the month day trading forex, or making 5R on a stock swing trade. Establishing What Your “R” or Risk Amount Is I have added in my own elements that I find beneficial. I believe “R” was originally discussed by Van Tharp, whose work I appreciate. R-Actual: is what we actually end up making/losing on the trade in terms of R.This is relevant before the trade and while it is open. For example, we may say this is a 3R or 3:1 reward:risk trade. R-Theoretical: is what we plan to risk and make on a trade.Fractional R: when we choose to, or end up, risking more or less than our ideal amount.If you are interested in really digging into your trading results, then you will also want to understand the following terms. If didn’t place a stop loss and lost $750 when we were only supposed to lose $500, that is a -1.5R trade (750/500). R-Multiple: our profit or loss on a trade divided by the amount we intended to risk.We may end up with Fractional Rs (discussed below). That said, we don’t need to use this position size on all trades.
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To understand how to come up with a standard position size see the position sizing articles for stocks or forex for more details on this. This is put in our trading plan as our “standard position” size. Here are some terms for understanding R values.
Understanding R-related Terms for Trading It allows for strategy and trade comparison regardless of risk tolerance, account size, or time frame. “R” is a standardized unit for assessing the reward and risk of trading strategies and trades.
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