Trading term
What is Expectancy?
Expectancy is the average amount you can expect to win or lose per trade, given your win rate and the relative size of your wins and losses. It is the single number that says whether a strategy makes money.
The formula is straightforward: expectancy = (win rate × average win) − (loss rate × average loss). Expressed in R, a system that wins 40% of the time with +2R winners and −1R losers produces (0.40 × 2) − (0.60 × 1) = **+0.20R per trade**. Over a hundred trades that is +20R, whatever the account size.
The important consequence is that win rate alone tells you nothing. That 40% system is profitable, while a 70% system whose losses are four times its wins is not: (0.70 × 1) − (0.30 × 4) = −0.50R. Traders chasing a high win rate routinely build systems that lose money slowly, because the arithmetic that matters combines frequency and size.
Expectancy is also the number that makes position sizing rational. A known positive expectancy per trade turns 'how much should I risk?' into an optimisation question rather than a feeling — which is precisely what the Kelly criterion answers.
40 winners at +2R against 60 losers at −1R: 80R of profit, 60R of loss, net +20R — or +0.20R per trade. Win rate alone would have told you nothing.
For example
Over 100 trades you win 40 and lose 60. The winners average +2R and the losers −1R, so gross profit is 80R against 60R of losses — a net of +20R, or +0.20R per trade. A losing majority, and a profitable system.
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Explore Premium →Why it matters to you
Expectancy is the only honest answer to 'does this strategy work?'. It replaces the two misleading numbers traders actually watch — win rate and the last few results — with one figure that accounts for both frequency and size, and it is the input every sizing decision depends on.
⚠ A positive expectancy still loses money if it's too small
Expectancy is usually computed gross. Commissions, spread and slippage come out of it, and a system at +0.05R per trade can be comfortably negative after costs. Compute it from realised, after-cost results, and over enough trades that a handful of outliers aren't setting the average.