1. What is Expectancy
Expectancy is the average amount you expect to gain (or lose) per trade, counting both wins and losses. It's the composite measure of whether a strategy has an edge.
Simply: if expectancy is positive, each trade averages a profit — the more you trade (with discipline) the better. If negative, the more you trade the more you lose.
2. Why it matters
- Expectancy fuses win rate and RR into one number — answering "does this strategy make money?" directly.
- It's the single most important metric for deciding whether a strategy is worth trading.
3. How to calculate
One common form (in R — where R is one unit of risk):
Expectancy (in R) = (Win% × average RR on wins) − (Loss% × 1)Example: win 40%, RR on wins 2R → Expectancy = 0.4×2 − 0.6×1 = +0.2R/trade. On average each trade makes 0.2× the money risked.
4. How to apply
- Compute from real data (journal/backtest). Positive → the strategy has an edge; negative → stop or fix.
- Multiply expectancy by number of trades to estimate the long-run: +0.2R × 100 trades ≈ +20R.
- Use it to compare strategies fairly.
5. Worked example
A 35% win rate sounds terrible, but if RR on wins is 3R: Expectancy = 0.35×3 − 0.65×1 = +0.4R/trade → a very good strategy. Expectancy exposes what win rate hides.
6. Common mistakes
- Ignoring expectancy, looking only at win rate or one period's profit.
- Computing on a small sample → unreliable expectancy.
- Forgetting costs (fees, slippage) making real expectancy lower.
7. FAQ
- Is positive expectancy a sure win? Long-term and with discipline, it's an edge — but there are still losing streaks; you need risk management to survive them.
- How is expectancy different from profit? Profit is what happened; expectancy is the average per-trade expectation, used to project the long run.
8. Tools
- An expectancy sheet from the journal (win %, RR, costs).
9. Checklist
- ☐ Do I know my strategy's expectancy (in R)?
- ☐ Is it positive on a large enough sample?
- ☐ Have I subtracted trading costs?