Explainer
R multiples and expectancy, explained
An R multiple measures each trade in units of the amount risked, and expectancy is the average R per trade, which shows more than win rate alone.
Updated
R: the unit of risk
R is the distance from the entry price to the initial stop. One R is the amount you lose if the trade is stopped out there. A trade stopped at its initial stop is −1.00R. A trade that closes at twice that distance in your favour is +2.00R.
Measuring in R takes size and market out of the figure. A tight stop on NQ and a wide stop on ES are both 1R. That lets you set trades of different sizes side by side.
- R multiple
- A trade’s result divided by its initial risk, the distance from entry to stop.
- Win rate
- The share of trades with a net R above zero.
- Average win, average loss
- The mean result of the trades above zero and the mean result of the trades below zero.
- Expectancy
- The average R per trade across all trades. Written as a number of R.
Win rate: the share of trades that make money
Win rate counts trades with a net R above zero and divides by the number of trades. It is easy to read and easy to misread, because it says nothing about the size of the wins or the losses.
Net means after costs. A trade that gains less than its commission is not a win in a net count.
Expectancy: the average trade
Expectancy is the mean R across every trade, wins and losses together. In words: win rate times average win, minus loss rate times average loss. Positive means the average trade added to the account over this history. Negative means it subtracted.
It is an average over one sample, so it carries uncertainty. A good report shows an interval next to it. Our findings give a 95% interval for expectancy, so the figure is read as a range.
Win rate says how often. Average win and average loss say how much. Expectancy puts the two together.
Why win rate alone says little
Two sets of rules can have the same win rate and opposite expectancy. A rule that wins often but takes small gains and large losses can have a negative average. A rule that wins rarely but takes large gains against small losses can have a positive one.
That is why a win rate is only worth reading with the average win, the average loss and the number of trades next to it. Our findings show average win and average loss in points per contract, net of commission, beside the win rate.
How to read the three together
Start with the trade count. Then read win rate and the average win against the average loss. Then read expectancy and its interval. If the interval crosses zero, the history does not separate the average trade from nothing.
Then check how the result is spread: by year, by market condition and across the held-back months. One average can hide a lot.
Questions and answers
What is an R multiple in trading?
A trade’s result divided by its initial risk, the distance from the entry to the stop. A trade stopped out at the initial stop is −1.00R.
What is expectancy in trading?
The average R per trade across all trades in the sample. It combines win rate, average win and average loss in one figure.
Is a high win rate a sign of a better strategy?
Not by itself. Win rate ignores the size of wins and losses. Two sets of rules can share a win rate and have opposite expectancy.
What does it mean when the 95% interval for expectancy crosses zero?
It means the history is consistent with an average trade of zero as well as with a positive or negative one, so the sample does not separate them.
Are R figures before or after costs?
It depends on the report, so check. Ours say whether commission is included, and net means after commission.