Why R is the Most Important Letter in Trading

📈 TRADER PSYCHOLOGY

Why R is the Most Important Letter in Trading 💹💡

R in trading parlance is simply a uniform unit of risk with all your rewards expressed as multiples of R. So a simple 10 pip stop and 20 pip target is a 2R trade. 📊 R can be expressed as pips, points, or dollars—whatever suits you. The primary value of R is that it normalizes risk across all your trades, or bets as I like to call them. 🎯

Now the internet is full of “R Billionaires” 🌐💸—traders who claim in podcast after podcast that they have a 70% win rate and 2.45R average. (Just to show you how ridiculous that claim is—it’s a 145% return per year without any leverage or the equivalent of taking $10,000 to $77 Million in 10 years). 😲📈

Trader bulls-t aside, R is a very useful tool that should be part of our trading process regardless of what strategy we use. 🧠 It’s essentially a risk framework that can quickly tell you how and why you make or lose money in the market. 📉💰

If you can achieve some positive multiple of R over 100 bets, you. are. winning. at. trading. 🎉 Everything else is just noise. 🔕

Now, in reality, 2R trades happen 25% of the time (did you really think the markets would give you any more than that? 😉). Occasionally, certain strategies and certain pairs can give you 30%-32% win rates on 2R trades and that is as good as it can get, because just like a casino with a 51%-49% advantage in roulette, you can make a lot of money out of a thin edge. 🎰💵

The key, of course, is to mitigate risk as soon as possible. 🚨 There are two ways to do it. You can move the stop to breakeven as soon as the trade goes 1R in the money and then wait for 2R to hit 31% of the time. 📈 If the b/e stop happens 50% of the time you are well ahead on this strategy. (Simple math—50 bets you lose 1R, 31 bets you make 2R, net result +12R). But that’s tough to do psychologically. 😓 We like to get paid more than 31% of the time. 💵 So most traders use a T1/T2 approach. In that scenario, you start with 2R risk, exit half the trade at 1R, move the stop to breakeven, and exit the 2nd half at 2R. In fact, the nirvana formula for such an approach is a 45-55-30 split where you lose 45 trades, make 1R on 55 trades, and make 2R on 30 trades. If you can do that consistently, you actually will be an “R Billionaire” one day. 🚀💰📈