Reading your own stats

1. 1 Measure every trade in R

   1R is the amount you risked on a trade: the distance from entry to stop, in money.

   Writing results in R makes trades of different sizes comparable:

   • Risked $20, lost $20: −1R
   • Risked $20, made $40: +2R
   • Risked $20, closed early for +$10: +0.5R

   If you always respect your stop, no loss is bigger than −1R (gaps and slippage can make it a little bigger). A loss of −3R in your journal means a stop was moved or missing.

2. 2 Win rate, average win and average loss

   Here are 10 example practice trades from a journal, in order, in R:

   +2, −1, −1, +1.5, −1, +2.5, −1, −1, +2, −1

   • Win rate: 4 winners out of 10 = 40%. Loss rate = 60%.
   • Average win: (2 + 1.5 + 2.5 + 2) ÷ 4 = 8 ÷ 4 = 2.0R
   • Average loss: (1 + 1 + 1 + 1 + 1 + 1) ÷ 6 = 6 ÷ 6 = 1.0R

   As lesson 1.5 showed, a win rate on its own says very little. A 40% win rate can make or lose money depending on the size of the wins and losses.

3. 3 Expectancy - what an average trade is worth

   Expectancy = win% × average win (R) − loss% × average loss (R)

   For the 10 trades above:

   • 0.40 × 2.0 = 0.80
   • 0.60 × 1.0 = 0.60
   • Expectancy = 0.80 − 0.60 = +0.2R per trade

   Check: the 10 results add up to +8 − 6 = +2R, and 2R ÷ 10 trades = 0.2R. Same answer.

   Expectancy above zero means the trades made money on average; below zero, they lost. Spread and commission are already inside the results if you journal what you actually got.

   Ten trades is a very small sample. A few lucky or unlucky trades can swing the number a lot, so treat it as a first reading, not a verdict. It describes past trades and does not promise the next ten.

   Quick check

   1. Question 1 · Calculation

      Ten journaled trades, in R: +3, −1, −1, −1.5, +1, −1, −0.5, −1, +2, −1. Work out the expectancy in R per trade (win% × average win − loss% × average loss).

      Your answer, in R

      R

      Check

   2. Question 2 · Multiple choice

      A plan's journal shows a 70% win rate, an average win of 0.5R and an average loss of 1.5R. What does the expectancy say?

      A.It makes money, because 70% of trades win.B.It loses money on average, because 0.7 × 0.5 − 0.3 × 1.5 = −0.1R.C.It breaks even exactly.D.You cannot tell without knowing the pair.

      Check

   3. Question 3 · Spot the mistake

      A trader reads their journal. Which conclusion is the mistake?

      A.One trade shows −3R, so I must have moved or skipped a stop.B.My expectancy over 10 trades is +0.2R, so the plan is proven and I can double my risk.C.My maximum drawdown was 2R; I should check I could follow the plan through a bigger one.D.My win rate is 40%, but I need the average win and loss before I can judge it.

      Check

4. 4 Maximum drawdown - the worst stretch

   Maximum drawdown is the biggest fall from a high point of your running total to a later low point. It tells you how bad a losing stretch felt.

   Running total of the 10 trades: 2, 1, 0, 1.5, 0.5, 3, 2, 1, 3, 2.

   • From the high of 2 (trade 1) it fell to 0 (trade 3): a drop of 2R.
   • From the high of 3 (trade 6) it fell to 1 (trade 8): a drop of 2R.

   Maximum drawdown = 2R. At 1% risk per trade that is roughly 2% of the account.

   Ask yourself: could I keep following my plan through a drawdown twice this size? If not, the risk per trade is too big for you.

   Check your understanding

   1. Question 4 · Calculation

      Same ten trades: +3, −1, −1, −1.5, +1, −1, −0.5, −1, +2, −1. What was the maximum drawdown in R?

      Your answer, in R

      R

      Check