What it is — Expectancy
Expectancy is the average amount you expect to win or lose on each trade over a large sample. It combines win rate and average win versus average loss into one number. A positive expectancy means the system makes money over time even though most individual trades are noise. Traders who skip this number confuse a lucky streak with an edge. The formula is simple and worth memorizing once.
Why it matters — Expectancy
Two systems can have the same win rate and very different expectancy. The risk reward ratio and the win rate interact — neither one tells the story alone. Position sizing multiplies expectancy but never changes its sign. A negative expectancy system loses faster with bigger size, so no position sizing trick rescues a broken strategy. Journal your last hundred trades and compute it honestly.
One worked example
You take 100 trades: 40 wins averaging $250 and 60 losses averaging $100. Total won $10,000, total lost $6,000, net $4,000 over 100 trades. Expectancy is $40 per trade. If your average risk per trade is $100, that is 0.4R of expectancy — a real, if modest, edge. Sample size matters: twenty trades prove almost nothing.
Where it misleads
Expectancy computed on twenty trades is a rumour, not a statistic. It also hides variance: two systems with identical expectancy can feel completely different to trade. And if your average win and average loss drift as you change behaviour, the old number quietly stops describing you.
Frequently asked questions — Expectancy
Can expectancy be negative and still trade?
Not as a system. A negative expectancy setup is a donation to the market. Costs make it worse.
How many trades to trust the number?
At least 50 to 100 for a rough read, more for low win rate systems where results cluster.
Related terms — Expectancy
Related tools — Expectancy
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