Strategy and performance
R-multiple
A trade's result expressed in units of its initial risk. Risking $200 and making $600 is +3R; hitting the stop is -1R. It makes results comparable across account sizes and position sizes.
GFN’s figure
In R terms a GFN 1 Step evaluation is straightforward to size: 10% at 0.5% risk per trade is +20R net, and the 8% drawdown floor is 16R of room.
- 1 StepTarget at 0.5% risk
- +20R
- 1 StepDrawdown room at 0.5% risk
- 16R
- 2 StepPhase 1 target at 0.5% risk
- +16R
In detail
R-multiple,explained
R-multiples strip out position size, which is the only honest way to compare trades taken at different sizes or on different accounts. A journal kept in R is far more useful than one kept in dollars.
Expressed in R, an evaluation becomes a simple arithmetic problem: a target divided by risk per trade gives the net R needed to pass.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Risk-reward ratio
The size of a trade's target relative to its stop, expressed as a ratio. A 2:1 trade risks one unit to make two, which sets the win rate the strategy needs in order to be profitable.
Expectancy
The average result of a trade over a large sample, combining win rate and average win and loss. A positive expectancy is necessary for a strategy to work and not sufficient for it to pass an evaluation.
Trade journal
A record of every trade with its reasoning, size, levels and result. It is the only way to find out whether a strategy is being followed, as distinct from whether it is working.
Fixed fractional
Risking a constant percentage of equity on every trade, so position size falls after losses and rises after gains. It is the standard position-sizing model and the one most prop rules assume.
Profit target
The virtual gain required to pass an evaluation phase, stated as a percentage of the starting balance. It is the only objective you have to reach; every other rule is something you have to avoid.
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