What it is
Trading expectancy calculates the average amount of money you can expect to make or lose per trade over a large sample size, factoring in your win rate, average win size, and average loss size.
Why it matters
Win rate alone means nothing without knowing your average win versus average loss. A strategy can win 70% of the time but still lose money if the 30% of losses wipe out all accumulated gains.
Expectancy gives you a single mathematical score that proves whether your strategy has a true edge in the market.
Why traders use it
Traders evaluate their trade journals or backtest results through this formula to see if their edge is positive after accounting for losses.
How important is it?
It is the ultimate litmus test for a trading system. If expectancy is negative, no amount of psychological discipline will make the strategy profitable over time.
Worked example
With defaults: 40% win rate ($200 average win) and 60% loss rate ($100 average loss). Expectancy = (0.40 * 200) - (0.60 * 100) = $80 - $60 = $20 per trade. In risk units, that is 20 / 100 = 0.20 R. Over 100 trades, the expected result is $2,000.
Common mistakes
- Calculating expectancy using a sample size that is too small (e.g., fewer than 30 trades).
- Ignoring commissions and swap fees when calculating average wins and losses.
- Assuming past expectancy will remain constant when market volatility changes.
Frequently asked questions
What is a good expectancy in R-multiples?
Any positive expectancy above 0R means the strategy has an edge. An expectancy between 0.20R and 0.50R per trade over 100+ trades is considered strong for day and swing traders.
Can I be profitable with a 35% or 40% win rate?
Yes. As shown in the default example, a 40% win rate with a 2:1 reward-to-risk ratio produces a +0.20R expectancy per trade.
What does negative expectancy mean?
A negative expectancy means your average losses outweigh your average wins over time, so the strategy will lose money until you improve your win rate or cut losses tighter.
Related trading guides
Risk-Reward Ratio Explained With Examples
Understand the risk-reward ratio, the win rate you need to break even, and why a good ratio alone does not make a good trade.
What Is Drawdown and Why Recovery Gets Harder
See how a trading drawdown is measured, why the gain needed to recover grows faster than the loss, and how to limit deep drawdowns.
This page is for education only and is not financial advice. See our disclaimer.