The formula
Expectancy = (Win% × Average win) − (Loss% × Average loss)
The result is what each trade is worth on average. Multiply it by your number of trades and you have the expected result over that period, before luck.
Two traders
Trader A wins 70% of the time, averages $100 per win and $300 per loss: 0.7 × 100 − 0.3 × 300 = −$20 per trade.
Trader B wins 40% of the time, averages $450 per win and $200 per loss: 0.4 × 450 − 0.6 × 200 = +$60 per trade.
Trader A feels successful most days and slowly loses money. Trader B loses more often than not and grows the account.
Expectancy in R
Dividing by your average loss gives expectancy in R — profit per unit of risk. It lets you compare a strategy you trade with 1 contract against one you trade with 5, or a stock strategy against a futures one. Trader B’s expectancy is +$60 ÷ $200 = +0.3R.
Break-even win rate
For any ratio of average win to average loss there is a win rate where expectancy is zero: avg loss ÷ (avg win + avg loss). With 2:1 reward-to-risk you only need to win 33.3% of the time to break even. Check yours in the expectancy calculator.
Where expectancy misleads
- Small samples. Twenty trades can show anything. Wait for 50+.
- One big outlier. A single huge winner can carry a negative strategy. Look at the median too.
- Mixed setups. An overall positive number can hide one setup that loses every month. Break it down by setup.
FAQ
Is a 50% win rate good?
It depends entirely on your average win versus your average loss. With 1:1 reward-to-risk it breaks even before costs; with 2:1 it is strongly profitable.
How do I calculate expectancy in R?
Divide expectancy in dollars by your average loss (your average 1R risk).