🛡️ Risk & Money·advanced

Expectancy

Also called: trading expectancy, expected value

The average dollar (or R) amount you can expect to make per trade over many trades — the math behind whether a strategy works.

Expectancy tells you how much money you make on AVERAGE per trade, accounting for both your wins and your losses. The formula is: (win rate × average win) − (loss rate × average loss). A positive expectancy means the strategy is profitable in the long run. A negative expectancy means it loses money no matter how disciplined you are. Expectancy is the most important metric in trading. A strategy with 40% win rate and 3:1 reward-to-risk has positive expectancy: (0.4 × 3) − (0.6 × 1) = 0.6R per trade. A strategy with 70% win rate and 1:2 reward-to-risk has negative expectancy: (0.7 × 0.5) − (0.3 × 1) = 0.05R per trade. Win rate without R-multiple is meaningless. Expectancy is also why tiny edges scale. A strategy with +0.2R expectancy that you trade 200 times a year delivers +40R per year. With 1% risk per trade, that's 40% returns annually.

Real trade example

Most professional discretionary forex traders run strategies with 40-50% win rates and 2-3R average winners. The expectancy works out to 0.3-0.5R per trade — small but consistent, and at scale it compounds into serious returns.

Related terms

Win Rate

beginner

The percentage of your trades that close profitably — one half of the equation that determines profitability.

R-Multiple

intermediate

A unit that measures profit or loss in multiples of the initial risk taken on a trade — normalizes performance across different position sizes.

Risk-Reward Ratio

beginner

The ratio between how much you risk on a trade and how much you stand to make — the math that makes trading profitable.

Kelly Criterion

advanced

A mathematical formula that calculates the optimal bet size based on win rate and reward-to-risk — used to maximize long-term growth.

Drawdown

intermediate

The peak-to-trough drop in your account equity — a measure of how bad your worst losing streak got.

Hedging

intermediate

Opening an offsetting position to reduce risk on an existing trade — sacrificing some upside to limit downside.

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