Expectancy

Intermediate

Expectancy is the average amount you can expect to make or lose per trade over a large sample, combining your win rate with the size of your average win and average loss into a single number.

Key facts

Formula(Win% × avg win) − (Loss% × avg loss)

Expressed inR multiples or money

Positive meansThe system makes money over time

RelatedR-multiple, edge, win rate

What it tells you

Expectancy collapses a whole strategy into one honest number: on average, across many trades, does this make money or lose it. A positive expectancy means the system pays over time even though individual trades are unpredictable, and the actual figure tells you how much per trade. Expressed in R, an expectancy of 0.3 means you keep about a third of your risk, on average, every time you trade.

Any single trade is a coin flip. Expectancy is the only thing that says whether the coin is weighted in your favor.

Why the sample size matters

Expectancy only means something over enough trades to be real, because a small sample is mostly luck. A handful of big winners can make a losing system look brilliant, and a rough patch can bury a good one. Traders who lean on expectancy give it a large enough window to trust, and they recompute it as they go, since the number drifts as the strategy and the market change.

Related terms

R-multiple Edge Position sizing

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