Expectancy in Trading

Expectancy is the average dollar result you can expect from each trade over a large number of trades. Positive expectancy means the system makes money over time; negative means it bleeds, no matter how good single trades look.

It ties your win rate and your risk-reward ratio together into one verdict on whether your edge actually pays.

Expectancy = (Win Rate × Avg Win) − (Loss Rate × Avg Loss)

Weigh your average win by how often you win, subtract your average loss weighted by how often you lose. The result is per-trade; multiply it by your number of trades to estimate what the strategy earns over time.

Example

You win 40% of trades, your average winner is $300, and your average loser is $100. Expectancy is (0.40 × 300) − (0.60 × 100) = 120 − 60 = +$60 per trade. Losing 60% of the time still nets you $60 on average, so over 200 trades that adds up to roughly $12,000. A high win rate with tiny winners and big losers can easily produce a negative expectancy instead.

The profitability score

Expectancy is the closest thing trading has to a profitability score. It cuts through the illusion of a high win rate by accounting for how big your wins and losses actually are, which is your risk-reward ratio in practice. Calculated per setup, it tells you which strategies to scale and which to retire. None of that works if the inputs are sloppy: win rate, average win, and average loss all need every trade logged accurately.

Expectancy in Trading

Example

The profitability score

Related Terms

TMM calculates expectancy per setup from your real trade history.