Understanding Trading Expectancy

What expectancy measures

Trading expectancy combines a strategy's win rate with its average win and average loss size into a single figure: the average amount you'd expect to gain or lose per trade, over many trades, if the strategy's historical statistics hold.

Why win rate alone is misleading

A strategy that wins 70% of the time can still lose money overall if its average loss is much larger than its average win, and a strategy that wins only 35% of the time can still be profitable if its average win is large enough relative to its average loss. Expectancy captures this interaction that win rate alone doesn't.

The general relationship

• Positive expectancy means a strategy is expected to be profitable over many trades, on average.
• Negative expectancy means a strategy is expected to lose money over many trades, on average, regardless of how it feels on any single trade.
• Expectancy is a long-run average — individual trades can still vary significantly either direction.

What to remember

• Expectancy combines win rate and average win/loss size into one expected-value-per-trade figure.
• A high win rate doesn't guarantee positive expectancy, and a low win rate doesn't guarantee negative expectancy.
• Expectancy is a long-run average, not a prediction for any single trade.
• This is general education, not a guarantee of future trading results.