pdf van tharp position sizing spreadsheet formulas

Instead of thinking you’re already up $500 and not wanting to lose it, you’re only up 0.5R, much less than your initial risk. Instead of losing $500, we’re only down -0.5R. Instead of risking $1,000, we’re risking 1R. Thinking in R & R-multiple places some kind of a buffer between us and the thought of money: So no wonder trading is difficult since money is on the line all the time, the money we’re risking, or the money we’re not making. The vast majority of us have a very strong emotional attachment with money since we associate it with survival, safety, status and power, or basically most of our human needs. So there’s a good implied risk management focus when using R & R-multiples.ģ- Less money pressure, more process-focus

Since the R-value is the initial risk taken in a trade as defined by your initial stop loss, you not only have no choice but to know exactly where you’re getting out before you get in, but you also have to calculate your position sizing based on your R and stop loss. So by thinking in R-multiples, you are in the mindset of cutting your losses short and letting your winners run.Ģ- Protecting the downside & knowing how much to bet

And when you get a 3R trade for instance, you know that you made 3 times the amount you risked. When you get -1R trade, you basically cut your losses perfectly and only lost the amount R you defined prior to entering the trade. Being able to make more on profitable trades than you lose on unprofitable trades is one of the most important ingredients of being profitable over the long term in the markets.Īnd as you can see, reward-to-risk thinking is integrated in the R-multiple concept. But what’s the point of using R and R-multiples? Glad you asked.īeing able to think in reward/risk is really important in trading. So the R-multiple is the amount profited (or lost) expressed as a multiple of your initial risk.Īny profit or loss can be expressed in R-multiples.Īll good. If you actually exited the trade at $120/shr, your R-multiple on that trade is 2R. In the previous example, if you get stopped out at $90, your R-multiple on that trade is -1R. R-multiples are – like the name implies – multiples of R. So your risk is $1,000 if you are stopped out => your R is $1,000. R or R-value is the initial risk taken in a trade, based on your stop loss.Į.g.: You buy 100 shares of stock XYZ currently trading at $100/shr, for a total of $10,000. Tharp., the well-known professional trading coach who wrote several trading books such as “ Trade Your Way to Financial Freedom” or “The Definitive Guide to Position Sizing”. R (aka R-value) and R-multiples is a concept developed by Dr.

Pdf van tharp position sizing spreadsheet formulas