Let me be clear about what my research has proven to me: Picking the right stocks has nothing to do with trading success and neither do amazing trading systems with high percentage wins.Van Tharp

This recipe includes the following topics:

- R and R-Multiple
- Van Tharp’s Resource

### Rand R-Multiple

**R or R-Value**: The initial risk taken in a given position, as defined by one’s initial*stop loss*.**R-Multiple**: Profits expressed as multiples of the initial risk.- Allows you to think in terms of Reward/Risk
- Provides a psychological edge when trading large positions
- Reduces anxiety by forcing you to think in terms of R-multiples instead of a dollar amount

#### Calculating R and Profit as R-Multiples

- Calculating R as a dollar amount
- Calculating R as a percentage of your trading account

```
# 1. Calculating R as a dollar amount
Entry: $100/share
Stop Loss: $90
# Risk
1R = Entry - Stop Loss = $10/share
# Profit in terms of R-Multiples
Exit: $120/share
Profit: $120-$100 = $20 --> 2R
-------------------------------------------------------------------------
# 2. Calculating R as a percentage of your trading account
# Risk
1R = Entry - Stop Loss = 1% of your trading account
# Profit in terms of R-Multiples
Outcome of last 6 trades: -1R, 3R, -1R, -1R, 2R, 3R
Profit: -1R + 3R - 1R - 1R + 2R + 3R = 5R
# Calculating Expectancy (easier version)
Expectancy = (-1R + 3R - 1R - 1R + 2R + 3R) / 6 = 0.83R profit per trade
i.e Profit per trade = 0.83R per trade -->; (0.83 x 1%)/trade = 0.83% per trade
# What if 1R was 0.5% of your trading account?
1R = 0.5%
i.e Profit per trade = 0.83R per trade -->; (0.83 x 0.5%)/trade = 0.415% per trade
```

### Resource

Van Tharp’s lesson on R and R-Multiple: https://www.vantharp.com/trading/wp-content/uploads/2018/06/A_Short_Lesson_on_R_and_R-multiple.pdf