Short answer: a pip is a price step whose value depends on the instrument, so pips cannot be added up across gold, indices and forex. R measures each trade against the risk taken, so results become comparable — and honest about losses.
What is a pip, and why does it mislead?
A pip is the smallest conventional price step of an instrument. For EUR/USD it is 0.0001; in our ledger, gold (XAUUSD) uses 0.1 USD and DAX and Nasdaq CFDs use 1 index point. Those steps represent very different amounts of money and very different amounts of risk.
The forex market is the largest market in the world by turnover — the BIS Triennial Survey measures it in trillions of dollars per day — and gold is priced in a deep global market benchmarked by the LBMA. Both are liquid, but a typical gold move in pips is many times larger than a typical EUR/USD move. A signal service that adds gold pips to EUR/USD pips produces a big number that means nothing.
What is R?
R is the initial risk of a trade: the distance from entry to stop-loss. Every result is then expressed as a multiple of that risk:
- stop-loss hit: −1 R;
- take-profit set twice as far as the stop and hit: +2 R;
- closed at entry: 0 R.
| Trade | Entry | Stop-loss | Exit | Risk (pips) | Result (pips) | Result (R) |
|---|---|---|---|---|---|---|
| Gold buy | 3,650.0 | 3,642.0 | 3,666.0 | 80 | +160 | +2.0 R |
| EUR/USD sell | 1.1650 | 1.1675 | 1.1675 | 25 | −25 | −1.0 R |
The gold trade "made 160 pips" and the EUR/USD trade "lost 25 pips", but in R the picture is clear: one win twice the size of the risk, one full loss.
Why R is more honest
R forces three things into the open:
- The stop-loss. You cannot compute R without one, so a record in R is a record of trades that had a defined risk.
- The size of losses. A long streak of −1 R trades is visible as exactly that.
- Expectancy. Average R per trade tells you what the method returned per unit of risk, before costs.
How to read R in our ledger
Once our ledger has closed signals, each article shows a data block from it: total result in R, win rate, average R per trade and the maximum drawdown in R. To translate R into money, multiply by the amount you risk per trade — then subtract your costs, which the ledger does not include.
What R does not tell you
R does not include spread, commission, swap or slippage, and it does not tell you whether the next hundred trades will look like the last hundred. Past results do not predict future results. Positioning data such as the CFTC Commitments of Traders report can describe who holds gold futures, but no dataset turns R into a forecast.
Questions
What is 1 R?
The distance between your entry and your stop-loss, expressed as the amount you would lose if the stop is hit. If you risk 50 USD on a trade, 1 R is 50 USD.
Can a strategy with a win rate below 50% be profitable?
Yes, if winning trades are larger than losing ones in R. A 40% win rate with an average win of +2 R and an average loss of −1 R gives +0.2 R per trade before costs.
Do R results include costs?
Ours are measured from the posted levels and do not include spread, commission, swap or slippage. Your costs reduce the result.
Sources
- OTC foreign exchange turnover in April 2022 (Triennial Survey) — Bank for International Settlements (BIS)
- LBMA Precious Metal Prices — London Bullion Market Association (LBMA)
- Commitments of Traders — U.S. Commodity Futures Trading Commission (CFTC)
Terms used here
- Drawdown — The fall of an equity curve from its previous peak. Maximum drawdown is the largest such fall over a period, measured in our ledger in R.
- Pip — The conventional smallest price step of an instrument. Its size differs: 0.0001 for EUR/USD, 0.1 USD for gold and 1 point for index CFDs in our ledger.
- Spread — The difference between the ask (buy) price and the bid (sell) price. Every round trip pays it once, before the market has moved at all.
- Slippage — The difference between the price an order asked for and the price it got. It is largest when the market moves fast or liquidity is thin.
- Stop-loss — An order that closes a position at a set price to limit the loss. The distance from entry to the stop-loss defines 1 R.
- Take-profit — An order that closes a position at a set profit level. It fixes the target before the trade, for example at 2 R.
- Win rate — The share of trades that end in profit. On its own it says little: a 40% win rate can make money and a 70% one can lose it.