Q: I’ve read your book twice and it took some help from my wife to eventually implement expectancy and position sizing correctly.
My question regards analyzing my system. I don’t have R values for the past performances of my system so I averaged the losses to determine “R”. With one system the average loss over 135 trades came to -2.87%. So I determined this to be my “R” on each trade.
So, going forward with my system, does it make sense to use that number (2.87%) as my stop loss on each position (assuming that I never risk more than 1% of my portfolio on each trade)?

A: When I have said use your average loss to determine R, I mean the dollar amount not the percentage amount.
However, I’m going to answer your question as if you gave me an answer of my average loss is $2500. No it doesn’t make sense to use that as your stop. I would hope that your average loss (with trailing stops being hit) is less than 1R, so it doesn’t make sense at all.
Here are my recommendations. First, always have an exit when you enter into a trade that determines 1R for you. Second, you can then analyze that exit by looking at the Maximum Adverse Excursion of your winning trades in terms of R.

For example,
2R win, MAE -0.3R
5R win, MAE -0.12R
1.2R win, MAE 0.25R

This kind of data might suggest that you could tighten your stop, but you’d need a lot more than 3 examples.