Lesson 3.1

Thinking in Units of R

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1R is the amount you are willing to lose on one position. If 1R = 1% of capital, then a "−1R" loss means −1% and a "+2R" win means +2%.

Comparing results in units of R. An example of three trades, before commissions and other costs.
BelajarGold diagram. Click the image to enlarge.

Why this is useful

  • It puts all positions on the same scale so results can be compared.
  • It shifts your focus from money amounts (which trigger emotions) to ratios (which are objective).
  • It makes evaluation easier: "my system produced +8R this month" is more informative than a nominal figure.
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