1. R - Units (Risk)
R (Risk) is a unit that simplifies understanding how much you lost or gained in terms of risk. Say for instance you plan to trade 10 shares of Apple (AAPL) at $170, then you set a stop-loss at $165, the formula for R is ( entry - stop loss x number of shares). R represents the amount you are willing to lose so if $170 - $165 x 10 is equal to $50, that means 1 risk unit or 1R = $50. Hopefully you see how R's can help you psychologically since watching the $ value in your account can trigger you to act to soon, more experienced traders avoid the trouble by thinking in R units instead.
2. Profit Factor
Profit factor can be determined by taking all of your gains in dollars and divide it by your losses in dollars. A profit factor of 1 or better is desirable by most millionaire traders since it indicates a strong trading system.
3. Expectancy
A trader's expectancy is a statistical prediction of how much a trader should expect to win or gain on the next trade. The formula goes:
Expectancy = (Win Rate * Average Win In Dollars) - (Loss Rate * Average Loss In Dollars)
You should aim to have a positive expectancy over time, also expectancy can be a great predictor of long term loss or gain. For instance, we can take the expectancy and multiply it by the total number of future trades to get your potential "Opportunity" (The total amount of money you could earn after doing # amount of trades.). Since expectancy is not easy to calculate, at Wise Tradr we automate this for you.
4. Rate of Risk Fault
Rate of Risk Fault or RORF is a metric that tells you the rate a which you lost too much in respect to your stop loss. So for instance, if you planed to lose $200 = -1R and instead you lost $250 = -1.5R, this will count as a penalty towards your risk fault. RORF can be used to keep your losses in check. It's also proprietary formula we provide on our platform here at Wise Tradr.
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