Expectancy in a trading strategy shows the average profit or loss a trader can expect per trade. It helps determine if the strategy will make money in the long run. A positive expectancy means the strategy is likely profitable, while a negative expectancy suggests it may cause losses. Knowing expectancy helps traders choose and develop better strategies for success.

What Is Expectancy in a Trading Strategy?

Expectancy measures how much a trading strategy can earn or lose on average per trade, considering both wins and losses. It is calculated by combining the probability of winning and losing with the average profit or loss of trades. This number helps traders understand if their strategy is likely to be successful over many trades.

Why Is Expectancy Important for Traders?

Expectancy helps traders decide if a trading strategy is worth following. Even if a strategy has many losing trades, it can still be profitable if the wins are large enough. This helps traders focus on strategies with a good balance of wins and losses for steady profits.

How Do You Calculate Expectancy?

Expectancy is calculated by this formula:
Expectancy = (Win Rate × Average Win) – (Loss Rate × Average Loss)
This means you multiply how often you win by how much you gain, then subtract how often you lose times how much you lose. If the result is positive, the strategy should make money over time.

How Does Expectancy Help Manage Risk?

Knowing expectancy helps traders control risks by deciding how much to invest per trade. If expectancy is low or negative, it signals that the strategy needs adjustment to avoid losses. Managing risk properly keeps your trading account safe and improves chances of long-term profit.

Can Expectancy Improve Your Trading Confidence?

Yes, expectancy helps build confidence in your strategy. When you know your strategy has positive expectancy, you can stay calm during losing streaks and trust that profits will come with time. This helps you avoid emotional decisions and stick to your plan.

What To Do If Expectancy Is Negative?

If your strategy has negative expectancy, it means it may lose money in the long run. You should review and improve the strategy by changing entry points, stop losses, or position sizes. Avoid using strategies that consistently lose to protect your capital.