Trading Strategies
Expectancy
The average amount a strategy earns or loses per trade over time: (win rate x average win) minus (loss rate x average loss). The single number that says whether an edge exists.
In plain English
Expectancy folds win rate and risk-reward into one figure. Positive expectancy compounds into profits; negative expectancy guarantees eventual failure no matter how good the last week felt. Serious traders compute it from their own logs, not from a strategy's marketing.
On prop accounts, expectancy per trade times trade frequency has to outrun the clock: an evaluation with a monthly fee and a positive but tiny expectancy can still be a losing proposition after costs. It is also the antidote to revenge trading, since one bad day changes a large sample very little.
- Win rate 45 percent, average win $300, average loss $150: expectancy = 0.45 x 300 - 0.55 x 150 = $52.50 per trade.
- Forty trades a month is $2,100 of expected profit.