What do traders mean for example in a 2:1 RR trade, tp was hit and they say I banked 2%? Is the 2R the same as the 2%?
Does it mean you increased your capital/balance by 2% percent?
Which doesn’t make sense to me, because:
Need clarity
R in 2R refers to risk. So if your risk is 1% then you made 2% on the account and if risk is 2% then you made 4% on the account etc.
So using your examples you hit TP with 20pips at 2R so your risk was 10pips.
Bob hit 60 pips at 2R so his risk was 30 pips.
If you are using proper risk management you and Bob wouldn’t have used the same lot size so would have arrived at the same gain in % on the account even though the pips made were different, in this case 3 times the size.
Careful with this abbreviation.
RR is usually written r:r and stands for “risk:reward ratio”.
In this equation, risk is always 1, so your r:r if you risked £100 and made a profit of £200 was 1:2.
Yes it is always relative to the risk so almost forget about pips as you are referring to them also. If Bob had the same SL as you (10 pips) and made the same 60 pip trade then his trade is R;R of 1:6 as @tommor says above or one might abbreviate to a 6R trade. So therefore 6% growth.
Hi tommor,
You may be theoretically right about r:r - depends on which definition you have taken to using. I had not thought about it because I use the inverse as explained by cashisking86. So I have checked in a respectable reference - Van K Tharp - Trade Your Way to Financial Freedom. On page 203, table 7.2 Tharp gives examples of what he terms “R multiples” which seems synonymous with bibsfx’s use of the term RR trade. In table 7.2 the first line states stock: ATI, initial risk $509, profit or loss $1,251, R multiple 2.46. So my understanding of the term RR trade is use of the Tharp expression R multiple, or reward/risk (not risk/reward). In my recent experience, I look for opportunities to enter crypto trades where the R multiple is between 3 and above (typically 5) with a timeframe of four weeks.
Sorry meant R:R thanks for the correction…
So basically when you set your R:R it all depends to your lot size aswell? So you can reach a certain target $?
@cashisking86 so does it mean your initial balance grew by 6% aswell?
I am trend-following so I don’t usually set a TP. In general terms, I aim to exit the trade while price is still strong in the expectation it will be weaker the next day, allowing me another opportunity to get into the same trend. I don’t use target pips or money.
It is just a multiple so not necessarily. If my risk is 1% of balance then hitting TP on a 6R trade is 6% growth. However, if my risk is 2% on a 6R trade then I am looking at 12% growth. It all relates to your risk.
Wrong way around. Your lot size depends on your R:R and more specifically the risk aspect of it. The reward is fluid as tommor says. 1% risk is 1% risk regardless of if the trade goes 2R or 10R. If your account is $1000 then 1% risk is $10.
Here you can see that with 1% risk and a 10 pip SL on EUR/USD with a $1000 account my lot size should be 0.1. However if my SL is double the size, the lot size is half to give me the same amount of risk to the account:
At no point is reward referred to in the calculator.
