Glossary - R-Value


Most traders only look at their performance and decide on the basis of this whether they have traded well or badly or whether a single trade was good or bad. However, this is problematic, because a pure performance comparison neglects the associated risk.

The term "R" is used to describe the risk associated with the trade, which corresponds to the amount that will be lost if the stop-loss is triggered. So, to calculate the R-Value, a stop-loss has to be defined.


Example:


You enter a trade at 100$ and set the stop-loss at 80$, so you are willing to enter a risk of 20$ of your balance.

If the trade is successful, you believe the price should rise to $140. Thus you can determine the R-value in case of success or failure of the trade. 

R = Profit / Risk

R = 40$ / 20$ = 2 if the price reaches 140$.


The expectation of the R-Value should always > 1 to be successful on the long run.

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