What Is Trading Expectancy?
Expectancy is the average profit or loss per trade over the long run. It's the single most important metric for evaluating any trading strategy — a positive expectancy means you make money; a negative one means you don't, regardless of how any individual trade feels.
Expectancy = (Win Rate × Avg Win) − (Loss Rate × Avg Loss)Example: 40% win rate, 40-pip average win, 20-pip average loss. Expectancy = (0.4 × 40) − (0.6 × 20) = 16 − 12 = +4 pips per trade. After 100 trades, projected profit = 400 pips — even though you lost 60 of them.
Expectancy Ratio — Edge Per Dollar Risked
The expectancy ratio normalizes expectancy by your average loss, showing your edge per unit of risk. An expectancy of +4 pips against a 20-pip average loss gives a ratio of 4/20 = 0.20. This means you earn $0.20 for every dollar you risk — a solid edge.
| Expectancy Ratio | Rating |
|---|---|
| < 0 | Losing — do not trade |
| 0 – 0.10 | Marginal |
| 0.10 – 0.25 | Solid |
| 0.25 – 0.50 | Excellent |
| > 0.50 | Exceptional |
Low Win Rate, High Expectancy
Many traders obsess over win rate, but expectancy is what matters. A 30% win rate with 1:4 R:R: (0.3 × 120) − (0.7 × 30) = 36 − 21 = +15 pips per trade. This is far more profitable than a 70% win rate with 1:0.5 R:R. Don't chase win rate — chase expectancy.