What Is Expectancy in Trading?

Expectancy is the average amount a trading strategy makes or loses per trade over a large number of trades. It combines how often you win with how much you win and lose, which makes it the most direct measure of whether a strategy has an edge.

Expectancy formula

Expectancy = (Win rate × Average win) − (Loss rate × Average loss)

Example

A strategy wins 45% of the time, with an average win of $300 and an average loss of $150. Expectancy = (0.45 × $300) − (0.55 × $150) = $52.50 per trade. Dividing by the average loss gives expectancy in R: +0.35R.

Why it matters

A high win rate can still produce negative expectancy if losses are much bigger than wins, and a low win rate can be very profitable with large winners. Expectancy is the number that tells you which situation you are in.

How to improve expectancy

• Cut setups with negative expectancy in your journal
• Let winners reach their planned target
• Remove rule-breaking trades, which usually have the worst expectancy

Calculate yours with the expectancy calculator. Related terms: win rate, R-multiple, profit factor. See the full trading glossary.