Quick Answer
Trading expectancy is an estimate of the average amount a trading strategy can be expected to gain or lose per trade, over a sufficiently large sample. It combines win rate with the average size of wins and losses into a single number, so a strategy with a low win rate but large average wins can still have positive expectancy.
- Trading Expectancy
- Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss). A positive result means the strategy is expected to be profitable on average per trade over a large enough sample; a negative result means it's expected to lose money on average, regardless of how often it wins.
The Expectancy Formula
Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss). Win rate and loss rate are expressed as decimals (a 40% win rate is 0.40), and average win/average loss are typically expressed in the same unit — dollars, points, or R-multiples.
Worked Example
Hypothetical example — not actual performance data
The numbers below are illustrative only, to show how the formula works. They are not Wrytics user data and don't represent typical or guaranteed results.
Suppose a strategy wins 40% of its trades, with an average win of $150 and an average loss of $80. Loss rate is 1 − 0.40 = 0.60. Expectancy = (0.40 × $150) − (0.60 × $80) = $60 − $48 = $12 per trade. Despite winning less than half the time, this strategy has a positive expectancy of $12 per trade, because the average win is large relative to the average loss.
Now compare a strategy that wins 70% of its trades, with an average win of $40 and an average loss of $120. Loss rate is 0.30. Expectancy = (0.70 × $40) − (0.30 × $120) = $28 − $36 = −$8 per trade. Despite winning most of its trades, this strategy has negative expectancy, because its losses are large relative to its wins.
Why Expectancy Matters More Than Win Rate Alone
Win rate alone doesn't tell you whether a strategy makes money, because it says nothing about the size of wins relative to losses. The two examples above show why: a strategy that wins less often can still be more profitable per trade than one that wins more often, if its average win-to-loss ratio is more favorable. Expectancy combines both into one number that's directly comparable across different strategies.
Limitations of Expectancy
- It's a historical average, not a guarantee — future trades can deviate significantly from the average, especially over small samples.
- It needs a reasonably large sample of trades to be reliable; a handful of trades can produce a misleadingly high or low expectancy by chance.
- It doesn't account for drawdown or the sequence of wins and losses — a strategy can have positive expectancy and still experience a losing streak large enough to be difficult to sit through.
- It assumes future trades resemble the trades used to calculate it — a strategy's expectancy can change if market conditions or execution changes.
Key Takeaways
- Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss).
- A positive expectancy means the strategy is expected to be profitable per trade on average, over a large enough sample.
- A high win rate doesn't guarantee positive expectancy, and a low win rate doesn't rule it out — the size of wins versus losses matters just as much.
- Expectancy is a historical average and doesn't guarantee future results.
- It's most reliable when calculated from a large enough sample of trades.
How Wrytics Can Help
Wrytics calculates expectancy automatically from your logged or MT5-synced trade history, alongside win rate, profit factor, and risk-to-reward, so you don't need to compute it by hand each time you review performance.