Expectancy

The average amount a strategy earns or loses per trade, over many trades.

Definition

Expectancy combines how often you win with how much you win and lose. A strategy with a low win rate can still have positive expectancy if winners are much larger than losers.

Formula

Expectancy = (win rate x average win) - (loss rate x average loss)

Example

Hypothetical exampleWinning 40% of the time with an average win of $300 and an average loss of $100 gives 0.4 x 300 - 0.6 x 100 = $60 per trade.

Learn it in context with PDB Academy

Guides, short videos and a plain-English glossary in one place, with tools to try each idea on real market data. The basics are free.

Create a free account Open PDB Academy