Rule Templates
A one-page reference defining the numbers that actually show up in a trading journal — expectancy, profit factor, R-multiple, and more — each with its formula and what it tells you in plain English. No calculation, just definitions.
What it tells you: The percentage of your trades that closed profitable. On its own it says nothing about profitability — a 70% win rate with small wins and huge losses can still lose money, and a 30% win rate with large wins and small losses can be very profitable.
What it tells you: The typical size of a winning trade versus a losing trade in dollar terms. These two numbers are the building blocks for almost every other metric on this page.
What it tells you: How many dollars you make on a typical winner for every dollar you lose on a typical loser. A payoff ratio above 1 means your average win is bigger than your average loss, but this still has to be weighed against your win rate to know if you're actually profitable.
What it tells you: A single trade's result expressed as a multiple of what you risked, rather than a raw dollar amount. A trade that risked $200 and made $600 is a +3R trade regardless of account size, which makes R-multiples comparable across trades with different position sizes.
What it tells you: The average dollar amount (or R-multiple, if you use R instead of $) you expect to make or lose per trade over a large sample, combining win rate and payoff ratio into one number. A positive expectancy means the system makes money over time before costs; a negative expectancy means it loses money even with a high win rate.
What it tells you: How many dollars a strategy generated in total winning trades for every dollar it gave back in total losing trades, across the whole sample. A profit factor of 1.0 is breakeven; above 1.0 is profitable; below 1.0 is a net loser, regardless of win rate.
What it tells you: The minimum win rate needed just to break even at a given payoff ratio, before any trading costs. A 2:1 payoff ratio needs a 33.3% win rate to break even; anything above that (before costs) is edge.
What it tells you: The largest percentage decline your account experienced from a high point to a subsequent low point, before recovering. It's a measure of the worst pain a strategy has historically put a trader through, which matters for position sizing and psychological tolerance even when the strategy is net profitable.
What it tells you: How many losses in a row a strategy has actually produced historically, which is the real-world stress test for a per-trade risk setting. A strategy with a 35% win rate will regularly produce streaks of 5, 6, or more consecutive losses purely from probability, not from anything going wrong.