Why Your R-Curve and Your Account Disagree

[Fairman]

Why Your R-Curve and Your Account Disagree

A trader's R-curve shows plus 20R over 100 trades: 40 winners averaging plus 2R, for plus 80R, and 60 losers averaging minus 1R, for minus 60R. At 1 percent risk per trade, that should be about 20 percent. The account grew only 4 percent. What happened?

Check sizing. Suppose the trader risked an average of 0.8 percent on winning trades and 1.0 percent on losing trades. Winners: 80R times 0.8 percent is plus 64 percent. Losers: minus 60R times 1.0 percent is minus 60 percent. Net: plus 4 percent. The mismatch arises because the trader took larger positions on trades that lost.

Why might that happen? Larger size after losses, to recover. Larger size on setups that felt weaker but had wide stops, with sizes not adjusted. Moving stops further away, which inflates the actual loss relative to planned risk.

Other possible sources: costs not included in the R figures, withdrawals counted in the equity curve, or compounding effects.

The R-curve measures the quality of decisions in their own units, and the account measures money after sizing and costs. The difference is where discipline in risk management shows.

What to do? Add a column with actual risk percent per trade, and compute average risk on winners and losers. A systematic pattern shows a behavior problem.

Fix it with a fixed risk rule applied through a calculator.

Exercise: compute the average risk percent of your winners and losers over the last forty trades.