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Drawdown, R multiples and expectancy
One large loss can undo many small wins. Put the whole sequence on paper before trusting the win rate.
Evaluate a sample beyond its win rate.
Drawdown measures the decline from a previous equity peak. Recovery is asymmetric: after losing part of the balance, the same cash gain is a larger percentage of what remains. Recording only the final return hides the path and its stress.
Define one R as a trade's initial modeled risk. A realized result divided by that amount gives its R multiple. Keep this definition consistent and include costs. Changing the original denominator after a loss makes comparisons misleading.
Estimated expectancy equals win frequency times average win minus loss frequency times average loss. It summarizes a historical sample, not a guaranteed next result. Small samples, selected trades and changing conditions can produce unstable estimates; show the count and assumptions beside the number.
Let’s use numbers · hypothetical example
Hypothetical: 40% wins averaging 2R and 60% losses averaging 1R gives 0.2R before costs. Costs of 0.1R per trade leave 0.1R. A 20% drawdown requires 25% growth from the remaining balance to recover.
Keep in mind
Positive sample expectancy can coexist with long losing sequences and future failure.
Your turn
Calculate a 70% win sample with average win 0.4R and average loss 1.5R before costs.
A quick check before we move on
Is a 70% win rate necessarily profitable?
- No
- Yes
- Only with many indicators
Check answer
No Win size, loss size and costs determine the sample result; the exercise gives -0.17R.
Sources and further reading
Content reviewed: 29 October 2026
Educational material with hypothetical examples. Trading can cause substantial losses. A course, pattern, stop order or past result cannot guarantee a profit or limit every loss. Practise in simulation and check current rules and product terms in your jurisdiction.