Free Trading School · Level 12: Advanced Risk, Testing and Going Live
Expectancy: does your strategy have an edge?
Expectancy is the average amount you can expect to win or lose per trade over many trades, measured in R (multiples of your risk). A positive expectancy is what traders call an edge.
A strategy wins 45% of the time with an average win of 2R, and loses 55% of the time with an average loss of 1R. Expectancy = (0.45 × 2) − (0.55 × 1) = 0.90 − 0.55 = +0.35R per trade. Over 100 trades at $100 risk, that is about +$3,500 before costs.
- A high win rate with tiny wins and big losses can still lose money.
- A low win rate with big winners can be very profitable.
- You need a meaningful sample, at least 30 trades and preferably 100, before trusting the number.
Judge a strategy by its expectancy over many trades, not by its last three results.
Quick answers
Expectancy is the average amount you can expect to win or lose per trade over many trades, measured in R (multiples of your risk). A positive expectancy is what traders call an edge.
Judge a strategy by its expectancy over many trades, not by its last three results.
+0.6R. (0.4 × 3) − (0.6 × 1) = 1.2 − 0.6 = +0.6R.
Next lesson: Total exposure and correlated risk