Calculating Performance Using R

Posted: 1st November 2018

As of November Signal Centre will now display all performance metrics using ‘R’

What is R?

‘R’ is substituted for ‘Risk’ and it measures the distance between the entry point of your trade and your stop loss order.
‘R’ is simply the amount of money risked on each trade.

Why R?

We measure our performance using ‘R’ as we feel this is an honest and fair way of displaying our returns.

Our clients can get a clearer picture of how we are performing and can apply these trades to their own risk tolerance.

How do I calculate R?

This is a personal choice and depends on your financial circumstances and tolerance for risk.

We use ‘R’ to display performance because we do not want to advise our clients on how much they should be risking per trade without any knowledge of their circumstances.

A couple of methods you could use to calculate ‘R’ are as follows.

Decide upon a fixed amount of capital to put at risk on each trade. This maybe £10 or £10,000, ultimately you need to be able to accept losing that amount and be comfortable.

Alternatively, you could use a fixed percentage (%) of your investment capital per trade.

E.g. You have an account of £10,000 and decide to risk 0.50% of that amount on a per trade basis. So 1R in this instance would be £50.

Your ‘R’ figure will change based on the value of the account in this scenario. So, if you lose 1R, your account will be £9,950. When you place the next trade and risk 0.5% your 1R figure will be £49.75.

Examples of R

Buy FTSE at 7120, Stop at 7100, Target at 7180.

20 points is the difference between our stop and entry level.

If your strategy is to risk £100 per trade, then you divide the monetary value by stop amount.

E.g. £100 / 20 = 5

Trade size is £5 per point.

If the trade is stopped out. You will lose 20 points.

£5 per point x 20 = -£100 (or -1R)

If the trade hits the target. You will make 80 points.

£5 per point x 80 = £400 (or 4R)

Contact Us

Still unsure? Then contact us here and we will be happy to explain this in more detail.

 

Signal Centre