Trading Expectancy: What One Trade Is Worth to You

What does expectancy measure?

Picture a game at a school fair. You pay to throw a ball and sometimes win a prize. One throw tells you nothing. But after a hundred throws you could say what one throw was worth to you on average. Expectancy is that number for your trades.

If it is above zero, the way you trade has been adding money on average. If it is below zero, it has been taking money away, even if some weeks felt fine. Close to zero means it has been roughly breaking even.

One example instead of a formula

Take ten trades where you risk ten dollars each. Six lose, so you lose ten dollars six times: sixty dollars gone. Four win, and each makes twenty dollars: eighty dollars in. After ten trades you are twenty dollars ahead. On average each trade was worth two dollars to you. That average is your expectancy.

Traders usually measure it in R instead of dollars. R is your result in units of risk: +2R means you made twice what you risked. In the example each winner was +2R and each loser lost one R. Measuring in R lets you compare a small trade with a big one, or a trade from last year with one from today.

Why is win rate alone misleading?

Your win rate is how often you win. It ignores size. A trader who wins eight trades out of ten can still lose money, if the two losers are bigger than the eight winners together. A trader who wins three out of ten can make money, if the winners are large.

Win rate is also easy to push up in ways that hurt. Take profit early and more trades close green, but the winners shrink. Expectancy does not fall for that, because it counts the whole result of every trade. What expectancy is in trading walks through this step by step.

Why look at expectancy per condition?

One number for all your trades hides a lot. Your average might be flat overall, clearly positive when the bigger chart was moving your way, and negative when the market went sideways. It might be good in the London hours and poor in the evening.

So the useful version is expectancy for a group of trades that share something: one of the confluences you look at before you get in, a kind of market, a session, a way of getting in, or a way of handling the trade after.

How many trades does it need?

A lot. Over ten trades, expectancy is mostly luck, the way a coin can land heads seven times out of ten. A few dozen trades start to show a shape. Well past a hundred, the number becomes something you can lean on. That is why EdgeFlow always shows the number of trades next to the expectancy, and says when a group is too small to tell. How many trades before you can trust a setup explains why.

Can one big winner fool you?

Yes. One trade that made ten times what you risked can carry a whole month of small losses and make the average look healthy. A quick check: take out your best trade and look again. If the average drops below zero, it was resting on one trade.

What changes your expectancy?

• Which of the confluences you look at before you enter you require.
• What the market was doing, and the session you traded in.
• How you got in: where the stop went, how early you entered, whether you followed your rules.
• What you did after: moving your stop, taking profit early, or holding to target.
• Costs such as commissions and fees, which come off every trade.

Is a good expectancy a promise?

No. It describes the trades you already took. Markets change, and a setup that worked can stop working. Keep measuring it on your recent trades instead of assuming it will last.

Common questions

Related reading

• What a trading edge is
• Trading analytics that explain your results
• Finding what works in your trades
• Building your edge