One number that sums up a strategy
Expectancy is the average result per trade over a long run. In R — multiples of what you risk — the formula is:
expectancy = (win rate × average win) − (loss rate × average loss)
Take a strategy that wins 45% of the time, makes 2R on a typical winner and loses 1R on a typical loser. That's 0.45 × 2 − 0.55 × 1 = +0.35R a trade. Risking 1% of the account each time, 100 trades like that add up to roughly +35% before costs — even though the strategy loses more trades than it wins.
The part that breaks people: losing streaks
Here's the uncomfortable bit. That same strategy, with a 45% win rate over 100 trades, has about a 92% chance of hitting five losses in a row at some point, roughly a 31% chance of eight in a row, and about a 10% chanceof ten in a row. Nothing is broken when that happens — it's just what a 55% loss rate looks like over a hundred tries.
Most strategies aren't abandoned because they stopped working. They're abandoned in the middle of a perfectly normal losing streak that nobody warned the trader about. Knowing the odds in advance makes it much easier to keep following the plan — or to choose a risk level small enough that the streak doesn't matter much. At 1% risk, ten straight losses leave about 90% of the account. At 5%, they leave about 60%.
Three ways to improve expectancy
- Cut losers at the stop, every time. Letting an average loss creep from 1R to 1.3R quietly wipes out a big chunk of the edge.
- Let winners reach their target. Taking profit early feels safe, but shrinking the average win is the fastest way to turn a positive strategy negative.
- Be pickier. Skipping marginal setups usually lifts the win rate more than any indicator tweak.
Note what's not on the list: risking more per trade. That makes a positive strategy faster and makes its drawdowns deeper — see the drawdown recovery calculator for how quickly that adds up. To check a single setup before taking it, use the risk/reward calculator.
Frequently asked questions
What is expectancy in trading?
Expectancy is the average amount a strategy makes or loses per trade, over many trades. In R terms it's: (win rate × average win) − (loss rate × average loss). A positive number means the strategy has an edge on paper; a negative one means it loses money on average, however good individual trades feel.
Where do I get my win rate and average win?
From your own trade history — ideally 30 trades or more, because a handful of trades says very little. For each trade, divide the profit or loss by the amount you risked to express it in R, then average the winners and the losers separately. A spreadsheet or trading journal makes this quick.
Is a high win rate the same as a good strategy?
No. A strategy that wins 70% of the time but makes 0.5R on winners and loses 1.5R on losers has negative expectancy: 0.7 × 0.5 − 0.3 × 1.5 = −0.1R. Plenty of traders feel successful right up until the numbers say otherwise.
How is the losing-streak probability worked out?
Exactly, not by simulation: the calculator walks through every trade and tracks the chance of each possible run of losses, assuming each trade is independent and has the same win rate. Real trading can be streakier than that — markets go through phases — so treat the figures as a floor, not a ceiling.
Why does the 'after N trades' figure say 'simple'?
Because it adds up the per-trade results without compounding and before fees, slippage and taxes. It's the clearest way to compare strategies, but your real account will differ — costs pull it down, while compounding a positive edge pulls it up slightly over time.
What's a profit factor?
Gross profit divided by gross loss. Above 1 means the winners outweigh the losers; 1.5 means every PKR 1 lost came with PKR 1.50 won. It tells a similar story to expectancy in a different unit.
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