Trading Expectancy: The Formula That Predicts Profitability
Expectancy combines win rate and risk-reward into a single number that tells you exactly how much you expect to make per trade on average.
Trading Expectancy: The Formula That Predicts Profitability
Win rate and risk-reward each tell you half the story. Expectancy tells you the whole story in one number.
Expectancy is the average amount you expect to make (or lose) per trade, accounting for both how often you win and how big your wins and losses are. It's the single number that determines whether a strategy is profitable.
The formula
Expectancy = (Win rate × Average win) − (Loss rate × Average loss)
Where loss rate = 1 − win rate.
Example: Win rate 45%, average win $300, average loss $100.
Expectancy = (0.45 × 300) − (0.55 × 100) = 135 − 55 = +$80 per trade
A positive expectancy means the strategy makes money over time. A negative expectancy means it loses money — no matter how often it wins.
Two strategies, same expectancy
| Strategy | Win rate | Avg win | Avg loss | Expectancy |
|---|---|---|---|---|
| Sniper | 35% | $400 | $100 | +$75 |
| Grinder | 70% | $120 | $100 | +$54 |
The Sniper wins less often but earns more per win. The Grinder wins more often but small. Both are profitable — but the Sniper's higher expectancy means more profit per trade and less time in the market.
Expectancy in R multiples
Pros express expectancy in "R" — multiples of initial risk — so the number is comparable across account sizes:
Expectancy (R) = (Win rate × Avg win in R) − (Loss rate × 1)
An expectancy of +0.2R means you make 0.2 times your risk per trade on average. Over 100 trades at 1% risk, that's +20% on the account.
| Expectancy (R) | Assessment |
|---|---|
| < 0 | Losing strategy |
| 0 to +0.1 | Marginal; fees may erase it |
| +0.1 to +0.3 | Solid |
| +0.3 to +0.5 | Excellent |
| > +0.5 | Likely overfit or unsustainable |
Why beginners misjudge expectancy
- Small sample size: 20 trades tell you nothing — expectancy needs 100+ to be reliable
- Survivorship in memory: You remember the big wins and forget the routine losses
- Ignoring costs: Commission and slippage can turn a +0.1R edge into a negative one
- Cherry-picking: Backtests that exclude losing periods inflate expectancy
How to use expectancy
- Log every trade's result in R in a journal
- Compute expectancy over the last 100 trades
- If negative, fix the strategy or stop trading it — don't size up
- If positive but tiny, raise your risk-reward before raising risk
- Re-estimate quarterly; edges decay
Position sizing follows expectancy
A strategy with negative expectancy cannot be saved by position sizing — it can only lose money more slowly. A strategy with positive expectancy can be sized up safely using the position size calculator. Get expectancy right first; everything else follows.
Expectancy is the truth serum for trading strategies. Track it honestly, and you'll know — without hope or fear — whether your edge is real.