Expectancy is the average amount you expect to win or lose per trade: (win rate × average win) minus (loss rate × average loss). Positive expectancy is the only thing that makes a strategy worth repeating.
Expectancy = (win rate × average win) − (loss rate × average loss).
With a 40% win rate, an average win of $300 and an average loss of $100: (0.40 × 300) − (0.60 × 100) = 120 − 60 = $60 per trade. That is the number you expect to earn, on average, every time you take the setup — not on any individual trade, but across many of them.
A 40% win rate with positive expectancy beats a 70% win rate with negative expectancy, every time. Win rate alone tells you almost nothing.
Dollars change with account size, so most traders express expectancy in R — multiples of the amount risked per trade. Divide expectancy by average risk: $60 ÷ $100 risked gives 0.6R per trade.
That single number makes everything else calculable. Sixty trades at 0.6R is 36R of expected profit. If you risk 0.5% per trade, that is roughly 18% of the account before compounding — and it tells you immediately whether a profit target is reachable in the time available.
Also check consistency. Expectancy of 0.5R driven by one enormous winner among a hundred losers is a very different proposition from 0.5R produced steadily, even though the average is identical.
The risk-reward ratio is potential profit divided by potential loss on a trade — a 3:1 setup can be wrong twice for every win and still make money.
Drawdown is the peak-to-trough decline in account equity, usually shown as a percentage. A 50% drawdown needs a 100% gain to recover, which is why capping it matters more than chasing returns.
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Guides, calculators and indicator pages that use this concept.
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