Trading Expectancy: The Formula That Tells You If You Have an Edge

Expectancy is the average amount you can expect to win or lose per trade, based on your results. If it is positive, your strategy has an edge. If it is negative, no amount of discipline or position sizing will make it profitable in the long run. It is the expected value of a trade.

The formula

Expectancy = (Win rate × Average win) − (Loss rate × Average loss)

Using average loss as a positive number.

Example: 100 trades, 45 winners averaging $320, 55 losers averaging $210.

Expectancy = (0.45 × $320) − (0.55 × $210) = $144 − $115.50 = $28.50 per trade.

Over 100 trades, that is about $2,850, before considering variance.

Expectancy in R

Dollars depend on your position size. Expressing expectancy in R-multiples makes it comparable across time and accounts:

Expectancy (R) = Average R-multiple of all trades

If your average trade is +0.25R, you make a quarter of your risk per trade on average. With $200 of risk per trade, that is $50 per trade. See R-multiples.

Using expectancy to decide what to trade

Calculate expectancy separately for:

• Each setup. Drop setups with negative expectancy over a reasonable sample, or fix them.
• Each time of day. See best trading hours.
• Long vs short.
• Each instrument or asset class.

Often a strategy with modest overall expectancy hides one excellent setup and two poor ones. Trading only the good one can transform your results.

Expectancy and frequency

A small expectancy traded often can beat a large expectancy traded rarely. Total expected profit is roughly expectancy times the number of trades. That is also why fees matter: they subtract from every trade's expectancy. See the impact of fees.

Watch the sample size

Expectancy from 20 trades is a guess. From 200, it starts to mean something. Look at whether expectancy is stable across months before trusting it. See sample size.

In TradeThink

Expectancy in dollars and in R is on the statistics page, and you can filter by setup, tag, side or asset to compare expectancy across your trading. Related: win rate vs profit factor.