Expectancy
The average amount you expect to win or lose per trade over a large sample.
Also called: edge · expected value · ev
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
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.