Expectancy: winning often or winning big

A beginner judges a method by its win rate: “I win seven trades out of ten, so I am good.” That is a mistake. A method that wins seven times out of ten can lose money, and a method that wins four times out of ten can make a lot. What counts is expectancy: what a trade earns on average, taking into account both how often you win and how big the wins are.

Everything is measured in R, the unit of risk: 1R is the planned loss if the stop is hit. A trade that wins twice the risk makes +2R; a stopped trade makes −1R.