Risk is the distance from your entry to your stop. Reward is the distance from your entry to your target. Divide one by the other and you get the R-multiple, the number that lets a trader be wrong more often than right and still grow the account. The number only works if the stop and target sit where the liquidity is: the stop behind the sweep, the target at the next pool.
A 3R trade, measured. A long taken on the retest of a flipped zone: price swept the low (taking sell-stops), reclaimed, and offered entry at 60. The stop at 52 sits just behind the sweep, so risk is 8 points. The target is the old high at 84, where buy-side liquidity rests: 24 points of reward, 3R.
RISK·~9 min read·Updated on ·Art of Trading
01 Risk, reward, R
The two distances, and the R-multiple
Risk = entry to stop. Reward = entry to target. R = reward divided by risk.
Risk is the distance from entry to stop; reward is the distance from entry to target. Both are measured from one point, your entry, and everything else on this page is built from those two distances.
Risk (1R)
Entry to stop
The price distance from where you got in to where you admit you were wrong. This is your unit. Call it 1R. If entry is 60 and stop is 52, then 1R is 8 points. Every other number on the trade is measured in these units.
Reward
Entry to target
The price distance from your entry to where you plan to take profit. Divide it by 1R and you get the R-multiple. Entry 60, target 84: that is 24 points, or 3R. You risked one unit to make three.
The R-ladder. One unit of risk sits below entry (the red band). Reward is counted in the same units going up: 1R, 2R, 3R. Price ran through all three, so this idea closed at roughly +3R.
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Everything in R, nothing in dollars
Once you measure trades in R instead of currency, account size stops mattering to the decision. A 3R winner is a 3R winner whether you traded one contract or twenty. R is the language that lets you compare trades, size them, and judge yourself honestly.
✓
Mark entry, stop, and target before you click
Measure the risk in points, measure the reward in points, and write the R-multiple in the corner of the chart. Under 2R, the setup has to be nearly perfect to be worth taking. No logical stop or no real target means no trade.
02 Expectancy over win rate
Expectancy decides profit, not win rate
A 40 percent win rate at 2R earns +0.20R per trade
The account grows or shrinks with expectancy: average R won per trade, across many trades. Win rate on its own says nothing until the R behind it is attached.
Expectancy is a small formula you can do in your head:
E = (win rate × reward in R) − (loss rate × 1R)
At a 40 percent win rate with 2R winners: E = (0.40 × 2) − (0.60 × 1) = 0.80 − 0.60 = +0.20R per trade. You lose six of every ten trades and still grind the account higher.
Break-even win rate is just 1 divided by (1 plus R). Everything above the line prints over time.
Reward : Risk
Break-even win rate
Expectancy at 40% wins
Verdict
1 : 1
50%
−0.20R
loses
2 : 1
33%
+0.20R
prints
3 : 1
25%
+0.60R
prints
4 : 1
20%
+1.00R
prints
Eighteen losers out of thirty, and the curve still ends at +6R. The early dip to −2R is normal. Losing streaks are the cost of running a positive-expectancy system, so plan for them instead of abandoning the method mid-streak.
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Win rate without R attached tells you nothing
A 90 percent win rate with tiny targets and enormous stops lets one bad trade erase ten good ones; at 0.3R per winner it is a slow-motion account killer. Always ask for the win rate and the R together.
03 Stop placement
Put the stop behind the sweep, not at the obvious tick
A stop must invalidate the idea and survive the routine stop-run
The obvious stop, one tick under the recent low, sits where everyone else's stop sits, which is why price reaches down and takes it first. Place the stop behind the sweep extreme instead.
A stop has two jobs. It must invalidate your idea when it is hit, and it must survive the routine stop-run that happens before the real move. Put it at the obvious low and it only does the first job. Put it behind the sweep, past the liquidity, and it does both.
The tick under the low. The sweep candle spikes straight through the crowd's stop, then price reverses and rallies without them. Stopped out at the worst possible price.Behind the liquidity. Same candles, wider stop. The spike misses it, you stay in the trade, and the move you were right about actually pays. A slightly bigger 1R, a far better outcome.
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Anchor to the level, then push past the sweep extreme
Anchor the stop to the structural level that invalidates your idea, then push it past the recent sweep extreme so a routine liquidity grab cannot touch it. Placed there, being hit genuinely means the idea was wrong.
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A wider stop raises 1R, so re-check the R-multiple
Pushing the stop back increases 1R, so the target has to move too, or the R-multiple collapses. If a logical stop makes the trade a 1R idea, the answer is not a tighter stop, it is a smaller size or no trade. Never shrink the stop just to force the math.
04 Target placement
Put the target at the next liquidity pool
Old highs, equal lows, and obvious levels are where resting orders pile up
Aim the target at the next place resting orders pile up: old highs and lows, equal highs, obvious breakout levels. Price travels from one pool of liquidity to the next, so the pool, not a round number, is the destination.
Target the pool, ride the zone. The trend rides a trend zone: line 1 on the shallow pullback touches, line 2 on their deepest wicks. two pullback lows land on it and a third confirms. The target is the horizontal liquidity pool up top, where old orders rest, and the drive taps it.
The tool framing the trend matters too. Two touches define a trend line and a third confirms it, but one line still marks a single price. The Art of Trading method is a trend zone: thicken that line into a narrow band, line 1 across the shallow pullback touches and line 2 through their deepest wicks. The band captures far more of the real price action than a single line.
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Upgrade the line to a channel, the channel to a zone
Wherever a trend line is tempting, thicken it into a trend zone: draw line 1 across the shallow edge of the pullbacks, then line 2 parallel through their deepest wicks. The zone shows where the trend is healthy and where a target into the next pool is realistic; a single line only shows where you drew it.
✓
Set targets before you enter
Scroll left. Find the nearest resting liquidity in your direction: an old high, a shelf of equal lows, an obvious breakout line. Put the target just in front of it, so you get paid as price reaches for the pool rather than hoping for a clean tag.
Pause · See it live
05 Position sizing
Size the trade with one formula
Fixed risk, variable size. The stop distance decides how big you go.
Position size falls out of two numbers you already have: the fixed amount you are willing to lose, and the stop distance. Nothing else goes into it.
position size = account risk (fixed) / stop distance × value per point
Pick a fixed fraction of the account to risk per idea (many traders use a small, constant percentage). Divide that by the per-unit risk, which is your stop distance in points multiplied by the value of one point. Wider stop, smaller size. Tighter stop, larger size. The dollars at risk stay constant.
Worked purely as mechanics, not a promise: if a trade risks a fixed amount, the stop is 8 points, and one point is worth a set amount per contract, then size is that fixed amount divided by (8 × point value). Double the stop to 16 points and the formula automatically halves your size. Your loss if wrong is the same either way. That is the entire point.
Decide the fixed amount you will risk on this idea, chosen before you look at the setup.
Measure the stop distance in points, from entry to the level behind the liquidity (chapter 03).
Multiply that distance by the value of one point for the instrument to get per-unit risk.
Divide your fixed risk by per-unit risk. That quotient is your size, rounded down.
Check the R-multiple to the pool. Under 2R, pass. The formula sizes the trade, the R-multiple decides if it is worth taking.
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Fix the risk, let the stop set the size
Picking the size first (one contract, ten shares) and letting the stop land wherever makes risk swing wildly from trade to trade. Do it in reverse: fix the risk, let the stop set the size. One blown-out trade should never cost what five normal ones make.
06 The liquidity read
Stops and targets are both pools of orders
Price is drawn from the pool that gets swept to the pool that gets targeted
A good stop sits behind the sweep and a good target sits at the old high for the same reason: both places hold resting orders, and price moves from one pool to the other.
A pattern, a range, an obvious level: to retail it looks like a signal. To an institution it looks like a parking lot for orders. Breakout buyers rest their entries on the level. Everyone long rests their stops beneath it. That cluster of resting orders is liquidity, and a large player who needs to fill a big position has to push price into it to get filled. The sweep is not random noise. It is the market reaching for the fuel it needs before the real move.
The whole trade in one picture. The range is an area of interest, so orders pile at its edges. Price sweeps the sell-side pool below (your bad stop dies here), reclaims, and is driven up into the buy-side pool above, which is exactly where your target belongs.
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Stop past the swept pool, target at the pool ahead
A pattern creates an area of interest. Interest is resting orders. Resting orders are liquidity. Institutions move price into that liquidity to fill size. So place the stop past the pool that gets swept, and the target at the pool price is being drawn toward. Risk to reward is this sequence, measured.
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The crowded breakout entry gets run before the move
The clean breakout entry with the tight stop under the level is the most crowded trade on the chart, so it is the one that gets swept first. If your plan looks identical to what a beginner's book would draw, assume the sweep is coming for it. Trade the reclaim, not the obvious break.
The whole page in six lines
Risk is entry to stop, reward is entry to target, and R is reward divided by risk.
Expectancy, not win rate, grows the account: 40 percent at 2R prints, and losing streaks are normal.
Put the stop behind the liquidity, past the sweep extreme, not at the obvious tick.
Put the target at the next pool, the old high or shelf price is being drawn toward.
Fix the risk and let the stop set the size, then only take ideas of 2R or better.
It is all one liquidity story: stops and targets are pools, and price is engineered to travel between them.
