TRADRILL / GLOSSARY / JOURNALING & METRICS
What Is Expectancy in Trading?
Category: Journaling & metricsChinese: 期望值(每笔期望)
Short definition
Expectancy is the average result per trade, expressed in R: (win rate × average win in R) − (loss rate × average loss in R); a positive number over a large sample is the arithmetic definition of a working strategy.
What it means
Expectancy compresses the paired metrics into one number: multiply the win rate by the average winner's R, subtract the loss rate times the average loser's R, and you have what one trade of this strategy is worth. +0.2R per trade means every five trades add roughly one risk-unit to the account; −0.1R means the strategy pays you to stop. It is the cleanest single answer to "does this work" — which is also why it must be earned over a sample, not read from a streak.
The formula's power is what it forbids. A high win rate cannot hide negative expectancy (the loss side of the equation eats it); a low win rate cannot hide positive expectancy (the win side carries it). Marketing quotes the factor that flatters; the equation multiplies them all. Costs belong inside the arithmetic — commissions and spread are part of every trade's realized R, and at high frequencies they are often the difference between + and −.
Two honesty clauses govern its use. Sample size: expectancy computed over 20 trades is an estimate with error bars wider than most edges; over hundreds it begins to mean something. Constancy: expectancy is a property of a process executed as designed — mix in unauthorized trades and you are measuring your discipline, not your strategy. Both clauses push toward the same practice: compute it per setup, from closed, rule-authorized trades only.
Using the number honestly
Expectancy earns trust only in this configuration:
- Computed per setup, on closed and rule-authorized trades — not blended with impulse entries.
- Costs inside the R figures, not bolted on afterward.
- Reported with its sample size ("+0.18R over 214 trades"), never as a bare number.
- Compared to the strategy's designed expectancy (from planned win rate and planned risk-reward) — the gap is execution.
- Recomputed on a rolling window rather than from all-time highs; edges decay and the recent window is the honest one.
- Never annualized or projected from a small sample into future income claims.
An expectancy review routine
One calculation per setup per review cycle, with the discipline to act on the sign:
- 1.From the journal, take the setup's closed trades for the window (≥ 50 before reading anything into it).
- 2.Compute realized R per trade net of costs; average winners and losers separately, and the win rate.
- 3.Apply the formula; record the result with the sample size next to it.
- 4.Compare with the designed expectancy: a large negative gap with a matching discipline-flag count indicts execution; a consistent negative number on a clean sample indicts the setup.
- 5.Act on the sign: positive — size stays boring and constant; negative on a clean sample — the setup goes back to simulation or gets cut; ambiguous — the window extends, not the position size.
Frequently asked questions
What is a good expectancy?
Any clearly positive number over a large clean sample, at a frequency whose costs you have already included. +0.1R per trade at 20 trades a month and +0.5R at 2 trades a month are both viable businesses; the number to fear is not a small positive expectancy but a negative one disguised by a flattering win rate.
How is expectancy different from win rate?
Win rate is one factor of the formula; expectancy is the product and difference of all factors. Win rate says how often you win; expectancy says what a trade is worth. Two traders with identical 50% win rates can have opposite expectancies if their average win and loss sizes differ.
My expectancy flips sign month to month — is the strategy broken?
Not necessarily; small samples produce sign-flipping noise even for a stable positive process. Lengthen the window (or pool setups' trades if they share a design), check that unauthorized trades are excluded, and judge the trend of the rolling estimate rather than any single month's sign.
Related terms & reading
Related terms: Win rate · R-multiple · Risk-reward ratio
Keep reading: How to Review Your Trades Weekly: A Working Template · How to Build a Trading Plan · What Is the Risk/Reward Ratio? How to Calculate R:R (Beginner's Guide)
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Educational content, not financial advice. Definitions describe trading behavior and risk concepts in general terms; they are not a recommendation to buy, sell or hold any instrument. AI-generated analysis. Not financial advice. Always do your own research.