Risk & Trade Planning

Define 1R as the initial planned risk for the trade and keep that denominator fixed in your journal. A $50 result on an initial $25 risk is +2R before any costs not already included. If an exit slips and loses $35, record −1.4R rather than rewriting the original risk.

A target two times farther away than the stop offers a potential 2:1 reward-to-risk ratio. That alone says nothing about how often the target is reached. It also ignores partial exits, missed fills and the size of losses that exceed the plan.

For a simple model, expectancy equals win probability × average win minus loss probability × average loss, with costs accounted for consistently. Estimate it from complete records using a fixed rule set; a few selected screenshots cannot establish it. A larger reward target may also be reached less often.

Worked example

Imagine 20 replay trades: 8 win 2R and 12 lose 1R. Gross total is 16R − 12R = 4R, or 0.2R per trade. If costs average 0.25R per trade and were excluded above, the net result becomes −1R overall. The attractive target ratio did not overcome the costs.

Try it in replay

Calculate the gross expectancy of a model that wins 30% of the time, wins 2R when right and loses 1R otherwise. What happens after costs?

Check your reasoning

0.30 × 2R − 0.70 × 1R = −0.10R per trade before costs. Costs make it worse. A target distance is a plan; positive expectancy requires evidence.