Trading Expectancy: The One Number That Tells You If a Strategy Works

Why Win Rate Is Not Enough

A strategy that wins 80% of the time can still lose money if the losses are much larger than the wins. What matters is the average outcome per trade: expectancy.

The Expectancy Formula

Expectancy = (Win% x Average Win) - (Loss% x Average Loss)

Example: 40% wins averaging $300 and 60% losses averaging $100 gives (0.4 x 300) - (0.6 x 100) = $60 per trade.

Win Rate and Reward-to-Risk Together

At 1:1 reward-to-risk you need over 50% wins. At 1:3 you only need just over 25%. Choose a combination you can execute psychologically.

High vs Low Win-Rate Systems

High win-rate systems feel comfortable but can collapse from a few large losses. Low win-rate trend systems feel painful during losing streaks but can compound strongly. Compare equity curves, not only win rates.

Measuring in R-Multiples

Express every result in R, where 1R equals your initial risk. A trade risking $100 that makes $250 is +2.5R. Divide total R by number of trades to get expectancy in R.

Sample Size

Calculate expectancy over at least 50 to 100 trades. A small sample can make a poor system look excellent.

Educational content only. Trading forex involves significant risk and is not suitable for every investor.