Expectancy
The average amount you can expect to win or lose per trade over a large sample.
Full explanation
Expectancy combines how often you win with how much you win and lose: (win rate x average win) minus (loss rate x average loss). Express it in R — multiples of the risk taken — so trades of different sizes are comparable.
A positive expectancy of 0.2R means that, on average, each trade returns a fifth of what you risked. Over two hundred trades that adds up; over five it means nothing.
Expectancy is the honest test of whether a strategy has an edge, and the number to watch when you change your rules.
Why traders watch it
It is the single figure that tells you whether to keep trading a strategy through a losing run or stop and rebuild it.
Trading considerations
- Measure in R so trades of different sizes can be compared.
- Use at least 50 to 100 trades before drawing conclusions.
- Track expectancy per setup — one weak setup can hide a good one.
Educational guidance only — never a trading signal or recommendation.
Related indicators
Confirmation
Observable evidence, defined in advance, that a setup is doing what you expected before you commit.
Drawdown
Drawdown is the fall from an account's peak value to its subsequent low, expressed in money or as a percentage. It measures the pain of a losing run rather than the final result. A 20% drawdown needs a 25% gain to recover, and the deeper it goes the harder recovery becomes, which is why controlling drawdown matters more than chasing returns.
Entry
The point at which you open a position — chosen in advance, with a defined trigger and invalidation.
Risk-controlled plan
A plan where the loss on every trade, and for the day as a whole, is decided before the market opens.
Risk-to-reward ratio
The comparison of what you stand to lose against what you stand to gain on a trade, calculated before entry.
Stop loss
A pre-set order that closes a position once price proves the idea wrong, capping the loss.