When a strategy says it made 300 pips, you still don't know much. 300 pips against what risk? Over how many trades? R answers that.
R is your risk on one trade
One R is the distance between your entry and your stop loss, the amount you stood to lose. Every result is then measured against it.
- A trade that hits its stop loses -1R
- A trade that makes twice the distance it risked earns +2R
- A trade closed at break-even is 0R
Because R is relative, you can compare a gold strategy with a forex one, or a small account with a large one.
An example
You buy with a stop 10 points below your entry. Your R is 10 points. If you sell 25 points higher, that trade made 25 divided by 10, which is +2.5R.
If you risk 1% of your account per trade, that +2.5R is about +2.5% before costs.
Three numbers worth reading together
Net R
All results added up. It tells you what the strategy earned for each unit of risk, but nothing about how rough the ride was.
Win rate
How often it wins. A high win rate can still lose money if the losses are bigger than the wins, and a 40% win rate can do well if the wins are large. Win rate means little without the size of those wins.
Drawdown
The deepest fall from a peak, also in R. If a strategy's deepest drawdown is 8R and you risk 1% per trade, expect a fall of around 8% at some point, and remember the next one could be deeper.
What R doesn't tell you
R is calculated from prices. Your own account also pays spread, commission and swap, and may fill at slightly different prices. Past results don't guarantee future results either.
See it on live results
Every LogicFlux strategy publishes its results in R, losing trades included, so you can judge it before risking anything.