Expectancy

What is Expectancy?

Expectancy tells you how much you can expect to make (or lose) on average per trade. The formula is: Expectancy = (Win Rate × Average Win) - (Loss Rate × Average Loss). A positive expectancy means your strategy makes money over time; negative means it loses.

Example: If your win rate is 55%, average win is $800, and average loss is $500: Expectancy = (0.55 × $800) - (0.45 × $500) = $440 - $225 = $215 per trade. On average, every trade you take is worth $215.

Why Expectancy is the Most Important Metric

Expectancy is the only metric that directly answers the question "Is my trading strategy profitable?" Win rate doesn't account for trade sizes. Risk-reward doesn't account for frequency. Expectancy combines everything into a single, actionable number.

• Positive expectancy + enough trades = profit. This is the fundamental equation of trading
• Negative expectancy + any number of trades = loss. No amount of trading volume fixes a losing strategy
• Break it down by setup: Your overall expectancy might be positive, but some setups could have negative expectancy — dragging down your total