How to calculate trading expectancy
Expectancy = (Win rate × Average win) − (Loss rate × Average loss)
Expectancy in R = Win rate × Average win (R) − Loss rate × 1R
Worked example
- Win rate 60%, average win $100, average loss $50.
- Expectancy = 0.6 × 100 − 0.4 × 50 = +$40 per trade.
- With the win rate at 40% instead: 0.4 × 100 − 0.6 × 50 = +$10 — still positive.
- At 20 trades a month that's an expected +$800 or +$200 respectively.
How to interpret trading expectancy
Expectancy is the most important single statistic of a trading system: if it's negative after costs, no position-sizing scheme can make the system profitable. If it's positive, the remaining questions are about variance — how bumpy the ride is — and how often you can take the trade.
Expressing expectancy in R (divided by the amount risked) makes it comparable across account sizes. The R-multiple calculator computes it from individual trades, and the compound growth calculator shows how it compounds.
Limitations and common mistakes
- Use net results after commissions and slippage — gross expectancy flatters short-term strategies.
- Expectancy estimated from fewer than ~30 trades has very wide error bars.
- Average loss should be entered as a positive number.