R-Multiple vs Risk-Reward Ratio: A Practical Guide

Planned versus realised

Planned risk is the rupee loss at the defined stop, including the position size you intended to take. Planned risk-reward is planned reward divided by planned risk. Realised R-multiple is realised net P&L divided by planned risk.

A ₹500 result and a ₹500 loss do not mean the same thing if the trades carried different planned risks. R-multiple provides a common unit for review, provided risk was recorded consistently.

Four examples

These examples exclude any unrecorded charges. If you use gross result for R-multiple, label it gross; net R is more useful for cost-aware review.

Limitations

R-multiple is only as good as the planned-risk field. Moving a stop after entry, adding to a position, or combining several legs can change the denominator. Record the original plan and later changes instead of rewriting history.

Set planned risk before entry

Planned risk is not whatever the trade eventually lost. It is the rupee amount defined before entry from entry, stop, quantity, lot size and any multiplier. Record the original stop even if you later move it; add a separate field for the change and its reason.

Planned reward is the result at the intended target under the same size assumptions. Planned risk-reward is a planning ratio. It says nothing about the probability of reaching the target or the quality of the execution.

How partial exits change realised R

A full stop at a ₹500 planned risk is −1R. A full target that returns ₹1,000 is +2R. If half the position exits at +2R and the remaining half exits at 0R, the combined result is about +1R before charges. If the trader exits the whole position early at ₹150 on ₹500 planned risk, the result is +0.3R. These are accounting examples, not recommendations.

When quantity, stop or target changes after entry, preserve the original planned fields and record the management event. Otherwise the journal can make a trade look more disciplined than it was.

Compare trades fairly

Rupee P&L alone rewards larger position size. R-multiple normalises the result by planned risk, which helps compare a small equity trade with a larger F&O trade. It still does not erase product differences, liquidity, gap risk, charges or the quality of the risk estimate.

• Compare net R with net P&L when costs matter.
• Keep one convention for multi-leg strategies.
• Report the number of trades behind an average R.
• Inspect the full distribution, not only the mean.