Ask most traders if their strategy is profitable and they'll tell you about their last few trades, their best month, or their win rate. None of these actually answer the question. The number that answers it is **expectancy** — and most traders have never calculated it. ## What Is Trading Expectancy? Expectancy is your average expected return per trade. It combines your win rate, average win size, and average loss size into a single number that tells you whether your strategy has a mathematical edge. **The formula:** ``` Expectancy = (Win Rate × Average Win) - (Loss Rate × Average Loss) ``` Or equivalently: ``` Expectancy = (Total Net P&L) / (Total Number of Trades) ``` If your expectancy is positive, you make money over time. If it's negative, you lose money over time — regardless of your win rate. ## Why Win Rate Alone Is Misleading Here's a scenario that breaks most traders' intuition: **Trader A: 70% win rate** - Wins: 70% of trades, average win $50 - Losses: 30% of trades, average loss $200 - Expectancy: (0.70 × $50) - (0.30 × $200) = $35 - $60 = **-$25 per trade** **Trader B: 35% win rate** - Wins: 35% of trades, average win $300 - Losses: 65% of trades, average loss $80 - Expectancy: (0.35 × $300) - (0.65 × $80) = $105 - $52 = **+$53 per trade** Trader A wins most of their trades but loses money. Trader B loses most of their trades but makes money. This is why chasing a high win rate without managing the win/loss ratio is a losing strategy. ## How to Calculate Your Expectancy ### Step 1: Gather Your Trade Data You need at least 50-100 trades for a meaningful expectancy calculation. Fewer trades and the number is too noisy to be useful. Export your trade history from your broker and calculate: - **Total trades** (N) - **Winning trades** (W) - **Losing trades** (L) - **Total profit from winners** (Σ wins) - **Total loss from losers** (Σ losses) ### Step 2: Calculate Components ``` Win Rate = W / N Loss Rate = L / N (= 1 - Win Rate) Average Win