What Is Expectancy in Trading? The Formula and What It Hides

Expectancy is the average amount you make or lose per trade, counting everything. It is the single most decision-relevant number in a trading record, and most traders can quote their win rate but not this.

The formula

Expectancy = (win rate x average win) minus (loss rate x average loss).

A trader who wins 40 percent of the time, makes $300 on an average winner and loses $150 on an average loser has an expectancy of 0.4 x 300 minus 0.6 x 150, which is +$30 per trade. A 40 percent win rate, positive book.

Reverse it: 70 percent win rate, average winner $50, average loser $180. That is 0.7 x 50 minus 0.3 x 180, which is minus $19 a trade. A 70 percent win rate, losing book. The win rate answers how often you feel right. Expectancy answers whether the process makes money, and the two disagree constantly.

The version most calculators hide

There are two expectancies in every book that costs money to trade, and conflating them buries the most useful diagnosis available.

Gross expectancy is computed at the price level, exit minus entry times size, before costs. Net expectancy is what actually lands. The gap between them is your cost drag per trade, and it is a constant you pay on every single fill regardless of outcome.

A real example from a book we audited: 11,888 trades, 54.6 percent win rate, net expectancy minus $6.14. The verdict "no edge" seems obvious. But gross expectancy was plus $1.86, against a modelled $8.00 per trade of costs. The edge existed. It was 4.3 times too small to pay for itself, which is a different diagnosis with a different fix, and it only becomes visible when you compute both numbers. The full decomposition is in our case study.

Reading your own number honestly

Three cautions make the difference between using expectancy and being fooled by it.

Sample size first. An expectancy computed on 20 trades is a rumour. The number stabilises slowly, and slower still when a few large trades dominate. If removing your best trade flips the sign, you do not have an expectancy, you have an anecdote.

Per condition second. A single blended expectancy averages your best conditions with your worst. A book at minus $6 a trade is usually a mix of conditions at plus $4 and conditions at minus $20, and the blend hides both.

Forward third. An expectancy measured on the same data used to pick the strategy flatters it. The number that matters is the one computed on trades that did not exist when you drew your conclusions.