R multiples versus account returns

Define which R calculation you mean

Different records may use different definitions, so label the calculation before comparing figures. This guide uses price-based R for a completed long trade: the exit price minus the entry price, divided by the absolute distance between the entry and original stop. The entry and stop must differ.

This definition measures price movement against a reference distance. It does not separately deduct fees or say how many shares were held. A journal could instead report net cash profit or loss divided by initial cash risk. That is a different definition and must be labelled as such.

A fictional loss larger than the planned risk

Assume a £2,000 account buys 20 shares at £50, with an original stop at £49. The position costs £1,000 and the initial price risk is £1 per share: 20 × £1 = £20. That reference risk is 1% of the starting account.

Suppose every share exits at £48.50. Price-based R is (£48.50 − £50) ÷ £1 = −1.5R. The gross cash result is 20 × −£1.50 = −£30. With an invented £2 total transaction charge, the net result is −£32.

For this isolated example, assume no other holdings, trades, deposits, withdrawals, currency changes or costs. Ending account value is £1,968. The account return is −£32 ÷ £2,000 × 100 = −1.6%. Price-based −1.5R and net account return −1.6% are both correct: they measure different things.

Planned risk is not a guaranteed loss limit

The SEC’s stop-order bulletin explains that the stop price is not a guaranteed execution price. A stop order becomes a market order when triggered, and execution can differ. That is why the example allows an exit below the original stop rather than assuming the loss must stop at −1R.

Use the prices actually recorded when analysing a completed trade. If those prices already include the effect of worse execution, do not subtract that same effect again as a separate “slippage” charge. Identify which costs are additional and which are already reflected in the result.

Position size changes the account percentage

Keep the same entry, stop and exit, but imagine only 10 shares instead of 20. The price-based result remains −1.5R. Gross cash loss becomes £15 rather than £30. On the same £2,000 starting account, that is −0.75% before costs, rather than −1.5% before costs.

This is why a total of R values alone cannot establish account performance. The amount risked may differ between trades. A rule saying “1R equals 1%” describes a particular fixed-risk illustration; it is not a fact about every trader’s account.

Check the assumptions behind a percentage

• Which definition of R is used: price-based, gross cash or net cash?
• Is the original risk reference preserved, and are partial exits accounted for?
• What account value and position sizes are used?
• Are fees included, and are prices actual or simulated?
• Were there deposits, withdrawals, other positions or currency effects?

The simple account-return calculation above depends on its no-other-activity assumptions. Do not reuse it unchanged for an account with external cash flows. Likewise, fixed starting-account illustrations and calculations that resize risk as equity changes are different models.

Keep the measurements distinct

A useful journal can show the planned risk, price-based R, cash result and account movement in separate fields. Unknown inputs should remain unknown until reconciled. None of these figures alone proves a repeatable strategy, complete trade history or expected future return.