Understanding R-Multiples in Trading

What is R?

R is your risk unit — the dollar distance from entry to stop.

If you buy a stock at $100 with a stop at $98, your R = $2. Every subsequent move is measured in multiples of that $2:

• Price moves to $102 → +1R
• Price moves to $106 → +3R
• Price hits $98 → -1R (stop)

R is the unit of account. Once you size positions so 1R = a consistent dollar amount (e.g., 1% of account), every trade becomes comparable regardless of stock price.

How to calculate R-multiples

Three steps:

1. Define entry and stop.
2. Compute R = |entry - stop|.
3. Express targets as multiples of R.

UnxEdge sets standard targets:

• TP1 = entry + 1R (bull) or entry − 1R (bear)
• TP2 = entry + 2R
• TP3 = entry + 3R

The actual price levels live in plan_tp1, plan_tp2, plan_tp3 on every setup.

Why R matters more than win rate

The trader's fallacy: "I'm right 70% of the time, so I'm a profitable trader." Not necessarily. Win rate is meaningless without average R.

Three traders with $1 risk per trade:

• Trader A: 70% win rate, avg win 0.5R, avg loss 1R → expectancy = (0.7 × 0.5) − (0.3 × 1) = +0.05R per trade
• Trader B: 40% win rate, avg win 2R, avg loss 1R → expectancy = (0.4 × 2) − (0.6 × 1) = +0.2R per trade
• Trader C: 50% win rate, avg win 1R, avg loss 1R → expectancy = 0 (breakeven)

Trader B has the worst win rate and the best results — 4× the per-trade edge of Trader A. The market doesn't pay you for being right; it pays you for being right big and wrong small. This is why breakout trading works despite hit rates that often hover around 40–50%. The right tail is fat.

Profit factor explained

Profit factor = total dollars won / total dollars lost.

• PF = 1.0: breakeven (before commissions/slippage).
• PF > 1.3: real edge.
• PF > 2.0: rare and excellent — usually indicates a tightly-defined system.

UnxEdge tracks profit_factor per symbol on every strategy_stats row. A symbol with profit factor 1.39 across 423 trades has demonstrated genuine edge — the sample is large enough that random luck is no longer a reasonable explanation.

How UnxEdge uses R-multiples

Three places:

1. Trade plans: every setup ships with TP1/TP2/TP3 expressed in R-multiples and converted to actual price levels.
2. Bot exit rules: Wex scales out — 33% off at TP1, 33% off at TP2, runs the last 34% with a trailing stop. This locks in 1R + 2R + (whatever the runner produces) instead of betting everything on TP3.
3. Backtest scoring: every historical trade is scored in R, not dollars. Lets us compare a $10 stock and a $400 stock on the same axis.

The output is avg_r per symbol — the average R captured across all trades. A symbol with avg_r = 1.7 across 50+ trades is a strong long-term candidate; one with avg_r = 0.3 may be hit-rate-positive but lacks the right tail that makes breakouts worth trading.