Expectancy
The average amount you expect to win or lose per trade over a large sample.
Also called: edge · expected value · ev
Written by Javier Sánchez Ros
In plain language
Expectancy combines your win rate with the size of your average win and average loss. A high win rate with tiny winners and large losers produces negative expectancy.
It is the only honest measure of whether a strategy works. Any individual trade, or any individual month, tells you almost nothing.
Positive expectancy is necessary but not sufficient. A profitable edge traded at reckless size can still end an account before the average has time to assert itself.
The formula
Expectancy Per Trade
(Win Rate × Average Win) − (Loss Rate × Average Loss)
- Win Rate
- Winning trades ÷ total trades
- Loss Rate
- 1 − Win Rate
Worked through
A strategy that wins 45% of the time, +1.8R on wins, −1R on losses
- Win contribution
- 0.45 × 1.8 = +0.81R
- Loss contribution
- 0.55 × 1.0 = −0.55R
- Expectancy per trade
- +0.26R
- Over 200 trades
- +52R
A quarter of an R per trade sounds like almost nothing, and that is the correct feeling. Individually these trades are forgettable; more than half of them lose. The edge only exists in aggregate, and it only becomes visible after a few hundred repetitions.
Which is why the honest way to read +0.26R is as a long-run average, not a prediction. Any twenty-trade stretch can easily be negative without the strategy having changed at all. Traders abandon methods with real edges constantly, on sample sizes far too small to have told them anything.
Costs belong inside the number, not beside it. A strategy at +0.26R gross that pays 0.08R a round turn in spread and commission is really at +0.18R — still good, but a third of the edge now belongs to the broker. On thinner edges that arithmetic is the difference between a business and a hobby.
And a positive expectancy does not make any position size safe. It says the account drifts upward over hundreds of trades; it says nothing about whether a bad thirty can happen first, which at 55% losers it absolutely can.
Change the numbers
This is the concept as a working tool. Edit any field and watch what moves — that relationship is the thing worth remembering.
- Per Trade
- $60
- Over 100 Trades
- $6,000
- Win Rate Needed
- 25%
To break even at this reward size
A 40% win rate is profitable here because the winners are larger than the losers. You need 25% to break even, and you have more than that.
Why it matters
Expectancy tells you whether to keep trading a strategy at all. Everything else — sizing, psychology, execution — is downstream of having a positive one.
Common mistakes
- Judging expectancy from a handful of trades, where randomness dominates.
- Calculating it on gross results and ignoring spreads, commissions and financing.
- Assuming positive expectancy makes any position size safe.
Put it to work
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The percentage of your trades that close at a profit.
How much you stand to gain compared with how much you stand to lose on a trade.
A trade’s result expressed as a multiple of the amount you originally risked.
A record of every trade, including the reasoning behind it and the result.
The probability that a series of losses reduces an account below the point of recovery.