A $400 win means nothing on its own. It is excellent if you risked $100 and poor if you risked $1,000. Dollar P&L mixes two things — how well the trade went and how big you sized it — and once they are mixed you cannot learn from either.
R-multiples separate them.
What an R-multiple is
R is the amount you planned to lose on a trade: the distance from entry to your initial stop, times the size. Every result is then expressed in units of that risk.
- Risked $100, made $250: +2.5R
- Risked $100, lost $100 at the stop: −1R
- Risked $100, closed early for a $40 loss: −0.4R
Two traders with very different account sizes can now compare results directly, and so can you across months where your size changed.
Fix R at entry, not later
R has to come from the initial stop. If you widen the stop after entry and the trade then loses, measuring against the wider stop makes a −2R loss look like −1R. The journal then reports discipline you did not have.
A loss bigger than −1R is information: slippage through a gap, or a stop that was moved. Either is worth knowing about.
Expectancy: the average R
Expectancy is simply the average R across your trades. It answers the one question that decides whether a strategy is worth trading: on average, what does one trade return per unit of risk?
Worked example — a setup that wins 40% of the time at +2R and loses 1R otherwise:
0.40 × 2R − 0.60 × 1R = +0.2R per trade
Risking $100 a trade, that is $20 per trade on average, or $2,000 over a hundred trades. A 40% win rate sounds bad until you see the payoff. A 70% win rate can lose money if the losses are three times the wins.
The break-even win rate for a given payoff is 1 ÷ (1 + reward-to-risk). At 2:1 it is 33%. Anything above that is edge; anything below is a slow leak however good the win rate feels.
How many trades before expectancy means something
Expectancy is an average, and averages of noisy numbers need a large sample. The +0.2R example above needs roughly two hundred trades before you can be confident the true figure is above zero. How many trades do you need before you trust a backtest works through the numbers.
In practice
The arithmetic is the easy part. Backcandle's journal reports expectancy, profit factor and average win and loss for every session. The hard part is the input: an R is only as honest as the stop it was measured from, so the stop has to exist before entry, every time.
The discipline rules can enforce that. One requires a stop on every order and can block an order without one; another caps the risk per trade, measured from each order's stop distance and size, so a trade cannot quietly be sized at three times your normal R.