Money Management Glossary: R-Multiple, Expectancy, Drawdown, MAR

Money management is the part of trading that survives strategy decay. The terms here are the units of measurement for any systematic approach.

R-Multiple

The ratio of profit or loss to initial risk on a trade. If you risk $200 (stop distance) and make $600, the result is +3R. If you lose $200, the result is −1R.

R-multiples normalize results across all trades regardless of position size. A strategy that averages +0.3R per trade over 200 trades is profitable; one averaging +1.5R per trade but only 30% win rate may not be — depends on expectancy.

Expectancy

Expected value per trade in R terms: Expectancy = (Win% × Avg Win R) − (Loss% × Avg Loss R).

If you win 40% of trades, average win is +2.5R, average loss is −1R: Expectancy = (0.40 × 2.5) − (0.60 × 1.0) = 1.0 − 0.6 = +0.4R per trade.

A positive expectancy of +0.2R is the minimum viable edge after costs. Below that, commissions and slippage erase the advantage.

Drawdown

Peak-to-trough decline in account equity, measured in %. Two flavors:

• Closed-trade drawdown: only realized P&L. Most retail platforms report this.
• Equity drawdown: includes open-trade heat. The honest number.

Real strategies drawdown 25–40% historically; prop firm and CTA drawdowns of 50%+ are not unusual. Anything advertising "max 5% drawdown" over a multi-year sample is misreporting.

MAR Ratio

MAR = Annualized Return / Maximum Drawdown. A 20% annual return with 10% max drawdown = MAR of 2.0. Industry benchmarks:

• < 0.5: weak
• 0.5–1.0: average
• 1.0–2.0: strong

• 2.0 sustained over 5+ years: top-tier (rare)

MAR is sensitive to sample length — a 6-month MAR of 3.0 means almost nothing; require 3+ years.

Related units

• Win rate: percentage of profitable trades. Useless in isolation; pair with avg win/avg loss.
• Profit factor: gross profit / gross loss. Profitable systems run 1.3–2.0; > 2.0 over 500+ trades is exceptional.
• Sharpe: return/volatility. Sharpe > 1 is acceptable, > 2 is excellent.
• Maximum Adverse Excursion (MAE): how far a trade went against you before resolving. Use it to tighten stops.

Practical use

Track every trade in R-multiples. Review expectancy monthly: if rolling 50-trade expectancy drops below half its historical average, pause and diagnose — edge decay is the rule, not the exception.