The risk unit R
Score every trade as a multiple of what you planned to risk. · 5 min
Decide first
R is the money you plan to lose if a trade goes wrong: the distance from entry to stop, times the position size. A trade that makes twice that is +2R; one that hits its stop is −1R.
R removes the account size, the share count and the price level. A $3 move on a $40 stock and a $30 move on a $400 stock compare directly. Results in R also add up: a list of trades in R sums to a number that means the same thing whatever you traded, which is what makes expectancy (lesson B2-3) possible.
Losses bigger than −1R happen. A gap through the stop fills at the open, not at the stop (lesson B1-1), and the R result shows it honestly as −1.6R or −2.4R.
Reward-to-risk
2.40R · break-even win rate 29.4%
reward 12.00 ÷ risk 5.00 = 2.40R; break-even = 1 ÷ (1 + 2.40) = 29.4%
Worked example: a long and a short
- Long at 100, stop 95: 1R = 5 per share. Exit at 103: (103 − 100) ÷ 5 = +0.6R.
- Short at 48, stop 50: 1R = 2. Exit at 43: (48 − 43) ÷ 2 = +2.5R.
- Together: +0.6R + 2.5R = +3.1R, though one was on a $100 stock and the other on $48.
Common mistake: judging trades in dollars
The biggest dollar win is often just the biggest position. A trader who looks only at dollars rewards size, not skill, and drifts toward bigger bets. Score every trade in R and the size question goes to its own place: position sizing, module B3.
Check yourself
- Six trades: +1.5R, +2R, +2R, +3R, +2R, −1R. Total in R?
- Long at 75.42, stop 72.85, closed at 78.71. Result in R?
- Long at 84.52, stop 81.89, target 89.25. Reward to risk?
Closing round
Take five trades, then read your results in the review in R, not dollars. Which trade was best in R, and was it the biggest in dollars?
Play the round in the simulator →The simulator's markets are generated, not real prices; the round practises the arithmetic, it does not predict anything.
Further reading: Tharp, Trade Your Way to Financial Freedom. The lesson teaches the idea in its own words and exercises.