Expectancy: the one number that says if a strategy works

Expectancy is the average amount a strategy earns or loses per trade. It is not the result of one trade, one week, or one good month. It is the long-run average you would get if you repeated the same setup many times.

It answers a simple question: every time you take this setup, how much do you expect to make? If the answer is positive, the strategy pays over time. If it is negative, no amount of discipline makes it work.

That distinction matters. A strategy with positive expectancy can survive a losing streak. A strategy with negative expectancy will eventually take the account, however good the last trade felt.

The common version is: expectancy = (win rate x average win) - (loss rate x average loss). Win rate and loss rate are decimals that add up to 1.

Say a setup wins 60% of the time, the average win is $300, and the average loss is $200. Expectancy is (0.60 x 300) - (0.40 x 200), which is 180 - 80, or $100 per trade.

You can also write it in R. If the average win is 1.5R and the average loss is 1R, the same 60% setup gives (0.60 x 1.5) - (0.40 x 1), or 0.5R per trade. Working in R makes strategies with different position sizes comparable.

Neither version needs a spreadsheet. It needs the two averages, and those only exist if you record every trade, not just the ones you remember.

Take a breakout setup with a 45% win rate, an average win of $650, and an average loss of $250. Expectancy is (0.45 x 650) - (0.55 x 250), which is 292.50 - 137.50, or $155 per trade.

Over 100 trades that is roughly $15,500 before fees. The trader loses more trades than they win and still makes money, because the wins are almost three times the size of the losses.

Notice what the win rate hides. On its own, 45% sounds like a failing strategy. With the payoff attached, it is a strong one.

Now take a setup that wins 70% of the time. The average win is $80 and the average loss is $350. Expectancy is (0.70 x 80) - (0.30 x 350), which is 56 - 105, or -$49 per trade.

This trader is right most of the time and still loses about $4,900 over 100 trades. They take profits early and let losers run, which is the most common way to build a high win rate and a losing account.

The journal shows this clearly once the averages are in front of you. Without them, the memory of all those green trades keeps the habit alive.

Win rate says how often you are right. Expectancy says whether being right pays. A strategy can have both a high win rate and negative expectancy, and the market does not care how often you were correct.

There is also variance. A positive expectancy of $100 per trade does not mean every trade earns $100. Ten losses in a row can happen with a good strategy, and that streak is where most accounts die.

This is why position sizing and expectancy belong together. A positive edge with oversized risk still ends in a blown account, because the losing streak arrives before the average has time to work.

Start with the numbers you already have: number of trades, wins, average win, and average loss. Compute expectancy per strategy, per symbol, or per session, not just for the account as a whole.

Separate strategies before you compare. A single blended number hides the setup that pays and the one that quietly drains the account. The same goes for long versus short and for different market conditions.

Review it monthly and question anything based on fewer than 30 trades. Small samples produce exciting numbers that disappear. Let the sample grow before you change your plan.

When expectancy is positive, the job is to keep taking the setup. When it is negative, no amount of confidence fixes it. Change the setup or stop trading it.