– [Instructor] Welcome

to the video series on risk management in trading. In this series, I will be

covering money management and risk management

in great depth. So in this particular part, I will be discussing

another important concept in risk management, that is importance

of knowing R multiple in your own trading strategy. After finishing this part, you will have good

understanding of how R multiple can be used to maximize profits and minimize losses

in stock market. So, let’s get started. In the previous video

on risk management, we did look into risk

of ruin in detail. In case have you

missed that video, link to the same would come up at top-right end of your screen. In this particular part,

I will be explaining why R multiple is so

essential in trading. I’ll be showing you how

to calculate R multiple and how to interpret

R multiple data for better risk management. I’ll also be introducing you to the concept of

R multiple total and how you can use this data to select trading

strategy in the market. Towards the end of this video, I’ll also be sharing

some practical insights into using R multiple

to exit trades, and how you should mark

R multiple on charts to help you get perspective

of the underlying trade. I’ll also strongly

recommend for you to read “Trade Your Way

To Financial Freedom”. This is a book written

by Dr. Van Tharp, and this book gives

you good insights into managing risk-reward

while trading. Now, I have put out

the link for the book in the description box below and in the comment

section below. So let me now show you how to calculate R

multiple in trading. This calculation is very easy and can be easily replicated

in an Excel sheet. To calculate R multiple, you

would require two data points. Number one, profit

or loss per trade, and number two, risk

taken per trade. In this example, if you

see, entry price is 100, stop loss is 80, and

exit price is 140. Initial risk is defined as

entry price minus stop loss, that is 100 minus 80

which equals to 20>Profit of this particular trade is exit price minus entry price, that is 140 minus

100 which equals 40. So R multiple here would

be 40, that is profit, divided by 20, which

was the initial risk. The final value therefore

comes out to be two. I hope this particular

calculation is clear. So let us now understand how

to interpret R multiple data and why it remains

the key to success in risk management in trading. In this chart, entry price,

stop loss, and exit price is given out in the

first three columns. Data for risk in figures,

risk in percentage terms, and total trading capital is given out in column

four, five, and column nine. Data for profit and

loss is given out in this particular column. So based on this data, R

multiple for each trade is calculated as profit and loss divided by risk taken per trade. If you look at the

first trade here, R multiple is given out as 0.34. This means you risked 6,000

to make a profit of 2,055. Therefore, your

returns were 0.34 times the initial risk that you took. I hope this is clear. If you look at the

second trade here, in this particular trade, you risked 3,800 to

make 7,800 as return. In terms of risk, therefore,

you made 2.07 times of the initial risk

you took in this trade. I hope the interpretation

aspect is clear. Now, one of the advantages

of calculating R multiple is that you’re always

measuring your profit or loss with respect to the initial

risk you’ve taken in the trade. Now, this is extremely useful as you will be more

careful in your trading and you will be disciplined and will have a

systemic approach when it comes to

risk management. So this chart that you see

is the same R multiple data that we saw in the

previous slide. So I have plotted

the data for you to understand how R

multiple data looks like in real life trading. Out of these all 20

trades that I’ve shown, look at how many time

one loses in the market. You need to ensure

that you don’t lose too much money

during these phases. This is absolutely crucial. Most beginners in the market

lose more in loss making trades and make less profits

in profitable trades. Therefore, you need to ensure

this does not happen with you. In this example, R multiple, if you see during

loss making trades is between -0.49 to -1.17. If you look at the

profitable trades data, most of the R multiple data

ranges between 0.34 to 0.52. There are just three trades

that you can see here that have R multiple above two, and then there is this one trade that has R multiple of eight. Now, this is what happens

in real life trading and this the main reason why consistency is so

important in trading. There are just few trades that

change the entire landscape of your portfolio, and during

such phases that I’ve marked, you need to ensure

that your profits run and you don’t sell

out too early. During the other phases,

you will incur losses, and this is where you

need to be proactive in order to protect

your existing capital. At all times, you should aim for your losses to

remain under one R, whereas your profits should

be as high as possible in terms of the risk taken. This, in my opinion, is

the golden rule of trading that very few

traders understand. So let us now understand the

concept of R multiple total. This is again a very important

concept in risk management and therefore, do

watch this closely. In your current

trading strategy, make sure you take data

for at least 100 trades and then compute

R multiple value like I’ve shown in

this Excel sheet. Once you compute the

R multiple values, add this data and compute

your R multiple total like I’ve shown here. Now, computing this data point

is important on two counts. Number one, this is

required to learn how much you will earn

over the next 100 trades in terms of your initial risk. And number two, this

will help you decide if you should be trading

this current strategy. In this example if you see, total R multiple

for 20 trades is 12. Due to space constraints, I could not post

data for 100 trades, but for 100 trades, the total

R multiple value was 67. As a trader, knowing

this is extremely crucial as I would know that if I stick with this strategy

for 100 trades, I do stand a chance

to make 67 times of my initial risk in trades. So this would help

me remain calm in phases where trades are

not working in my favor and I would continue

to execute trades in a disciplined manner. I hope this crucial point about R multiple

total is now clear. So let me now explain how R

multiple can help you choose from different

trading strategies. Now, as a trader,

it is very common to have multiple strategies, and hence, the question remains, how to short list which

strategy to trade. If you’re beginning

in the stock market, then use the combination

of drawdown and R multiple. So drawdown is marked here and R multiple data is in

this particular column. Now, as a trader, you should

choose such a trading strategy where drawdown is minimum but R multiple over

100 trades is maximum. So before heading forward, let me take few seconds to

explain what drawdown is. In this chart, I have

plotted cumulative profit and loss of trading portfolio. Now, drawdown is the difference between high of

the trading account and low of trading account that is expressed

in percentage terms. So this actually represents how much a trading strategy

can lose in market, and hence, this is an

important metrics to track. So if you look at this example, System A has drawdown of

10%, and R multiple is at 35. If you look at System

B, drawdown is at 7%, and R multiple is at 33. So if I have to select

between System A and B, I would actually

prefer Trading System B based on the combination

of drawdown and R multiple. In this entire

example, if you see, I would prefer System J because it has a

drawdown of just 7%, whereas R multiple is at 41. I hope this advantage

of R multiple is clear. So let me now show you how R

multiple distribution chart can be immensely helpful

when you need to exit trades. Based on the example

in front of you, I would know that

average R multiple for this trading strategy,

that is for winning trades, is between 1.5 and 2.2. For all loss-making trades, average is between

-0.6 and -0.9. Now, in real time trading, if I get a trade that

gives me 3R return within the next

few days or hours, I would be inclined to book

out on some profits at least, as R multiple of

trade is clearly above the average R multiple

of this trading strategy. I hope this important

point is clear. Now, if I get a trade that

is not working in my favor, I would know when to exit it by looking at the

historic R multiple for loss-making trades. Under no circumstance would

I want to take more loss than historic average

loss of trading strategy based on R multiple data. This is again a key

rule in risk management, and therefore, do

take not of this. In this particular example, if I find R multiple

of trade below -1, I would immediately

reduce my position size or would entirely book loss

on the particular trade. Let me now show you how I mark out R multiple

data on the chart, and this is something I do

for each and every trade and this definitely helps me out in overall risk management. Let us assume I am taking

entry at this level and I have marked

the stop loss here. So the difference between

entry and stop loss would be my initial

risk that is R. Once I have taken entry

in the particular stock, I then mark out 1R, 2R,

and 3R level on the chart. So as trade progresses, I constantly take note profit

in terms of R multiple. This actually helps me get a

overall perspective on trade with respect to the initial

risk I have undertaken. In this chart, if you see, even though price is rallying

at this particular point, I would be inclined to book

out some profits at least as trade is already giving me three times of

what I have risked. So if you’re someone

who’s new to trading, I would strongly

recommend for you to start marking out

this on the chart. That is multiple R levels. You’ll immediately

see a difference in your overall thought process and this will help you

exit trades better. So let me now explain how you should be proceeding

forward with R multiple. So to calculate R multiple, you can either use

Microsoft Excel or you can use softwares

like Trading Blox which actually help you

calculate R multiples for many trading

strategies at once. In my own opinion, Microsoft Excel is more than

enough to compute R multiple, it is just that it

takes a little more time to get the results as there is a lot of manual work required. In case you want R

multiple Excel sheet, do let me know in the

comment section below and we will email it to you. As far as R multiple

is concerned, your entire focus should be to keep R multiple

of loss making trades between -1R and zero. So once you finish

computing R multiple data and drawdown statistics, do let me know in the

comment section below for my feedback on the same. So kindly consider

hitting the like button and sharing this video

if you find it useful. Thanks a lot for watching

this video, guys. Take care and be safe.

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Thanks For Watching Guys. Tc & Be Safe.

Thanks for clear crystal explanation.

Made one mistake today, exited @ 1.2 R multiple which could have been 4.

I had taken short trade on reliance today.

Superb

Hi sir, thanks for the valuable content. Kindly make some videos on harmonic trading strategies…. thanks in advance sir….

Nice video. Plz send the risk of ruin excel, R multiple and drawdown excel ,[email protected]

RESPECTED BROTHER,,,,,, THANKS FOR THIS EXCELLENT VIDEO…..

YOU HAVE SHOWN EVERY TRUTH OF THE MARKETS…..

BUT STILL….MANY TRADERS ARE WANDERING….JUST FOR PROFITS….NOT FOR KNOWLEDGE…..

THANK YOU VERY MUCH….πππ

Highly useful informative video sir.Thanks.

This one is the real winning secret. Million dollar video β€

Amazing sir..

Bhai Saari Umar yaad Rahoge…

Thank you so Much Bhai β€οΈπ

Sir i have no words to u just amazing π π π

how to calculate drawdown percentage

This vedio will make us more discipline for sure. Thank you Sir. The base lone is, make more profits and less losses, as simple as that.

Sir forgot tell that VWAP is working superb.

Sir, this is most required, very good video, kindly send me R Multiple excel sheet to [email protected] Thank U

Wonderful explanation with the help of excel sheet & bar charts.

You have made highest efforts to ensure that the viewer has understand the importance of title of the video. " R" Multiple…

Thank you for knowledge sharing.

If it suits you suggest make a single link wherein a viewers can find all the useful Excell sheets by there name which can be downloaded from your site.

Hi sir loved u r video.can u make a video on how to use volume profile in intraday

I wish someone explained this as clearly as you did here five years ago. I make numerous trades with small profits and exit one trade that wipes out the principal! Thanks for sharing though I have become more cautious and exiting with losses.

can you suggest the better strategy according to your experience, trailing the stoploss until it got hit or reasonable take profit percentage?

Real winning secret

Wonderfully explained as usual π

Very informative gems …thanks Sir

Nicely explained.. As usual

Thank u sir. For nice video.

Waiting for next video on ichimoku system

sir thanks for the video can you provide me your R multiple excel sheet ?

Thanks for your effort and time. Already I have gone through Mr. Van Tharp's "Super trader" and find some difficulties in understanding his concept. I need to relearn it again. Have a nice time and thanks for your guidance.

Sir, no loss since last 2 months. Trading only in index once in a week.

Thanks for the video. Please share the excel sheet of rmultiple at [email protected]

Sir Good Evening. Please send me Excel Sheet so that I will also start Money Management

SIR u said R multiple

Risk should be less than -1

Means intial risk should be less than 1%

Not more than 1%.

%R Multipale->profit/Loss

is differ from risk management

=>Risk/Reward ratio

But R-multiples tells u for 100 trades

how much times u can make of the Risk….

Sir I want To know

is it Good to fallow Strict R:R-Risk:Reward ratio-

or

variable Risk:Reward ratio

with trailing stop..

i gota confuse..

Hi sir

Ill be happy if you discuss and brief something about strategies you use in short term trading and long term investing, distribution of capital in both the cases thank you π

Nice, simple calculation. I will be calculating my risk with R multiple now. Thank you very much, I believe this will change my trading perspective from now on.

Excellent info, the concept of marking R's on the chart will be something that I will start doing from now onwards. Thanks a lot !!!

Hi I watch your channel diligently and I believe it's one of the best channels for learning aspects of trading , ta and psychology. I am glad that you have started a series on Money Management. I would request you to please send me the excel sheet with the R multiple calculations on [email protected] Thank you in advance. Hersh

Hii brother…I like all your informative videos…But I am confused whether to trade in stocks or index…In which instrument profits can be maximised…

Sir please let us know which trading platform you use

Kindly share the R Multiple excel sheet to [email protected]