What are 1R, 2R, and 3R (Risk Management)

"R" is a unit of measurement for risk, not a dollar amount. One R equals the amount of money you are risking on a single trade — the difference between your entry price and your stop-loss (the price where you'll exit if the trade goes wrong), multiplied by your position size. Once you know your 1R, every other number in the trade can be described relative to it.

So if you risk $100 on a trade, that $100 is your 1R. If the trade moves in your favour and you close it for a $200 gain, you made 2R. If it goes against you and you lose the full amount you planned to risk, you lost 1R. If you got stopped out early for half your planned loss, that's -0.5R. The point of using R instead of dollars is that it lets you compare trades of very different sizes on the same scale — a $50 win on a small trade and a $500 win on a large trade might both be "2R" if the risk taken was proportional.

The nuance that trips people up is that R is only as meaningful as your stop-loss discipline. If you move your stop after entering the trade, or you don't have a stop at all, your 1R becomes a moving target and the whole framework stops meaning anything. R also says nothing about probability — a strategy that wins 2R per trade but only wins 30% of the time can still lose money overall, so R has to be looked at alongside win rate, not instead of it.

Traders also use R to describe their overall track record: "I average 1.5R per winning trade" or "my system nets +0.3R per trade across all trades" are ways of summarizing performance independent of how much capital was actually in play.