Expectancy is a statistical measure used to evaluate the potential profitability of a trading strategy. It tells you, on average, how much you can expect to earn or lose per trade. A positive expectancy, like in this case, suggests that the trading system is profitable over time.
Trade Expectancy Calculator
Results
Loss Rate: –
Expectancy / Trade: –
To calculate the expectancy, you need three key components:
- Win Rate: The %age of all the trades that are profitable. In your case, it’s 55%.
- Average Win: The average profit from all winning trades, which is $100.
- Average Loss: The average loss from all losing trades, which is $80.
The formula for expectancy is:
Expectancy=(Win Rate × Average Win)−(Loss Rate × Average Loss)
Example of Positive Expectancy:
Based on your values, the calculation is as follows:
- Win Rate: 55% or 0.55
- Loss Rate: 100 or 0.45
- Average Win: $100
- Average Loss: $80
Expectancy=(0.55×$100)−(0.45×$80)
Expectancy=$55−$36
Expectancy=$19
This result indicates that for every trade you make using this system, you can expect to make an average profit of $19.
Example of Negative Expectancy:
- Win Rate: 75% or 0.75
- Loss Rate: 25% or 0.25
- Average Win: $20
- Average Loss: $100
Expectancy = (0.75×$20)−(0.25×$100)
Expectancy = $15−$25
Expectancy = -$10
This result indicates that for every trade you make using this system, you can expect to lose an average of $10.
Types of expectancy
Positive Expectancy: A value greater than zero ($ > 0$). This occurs when the total profit from winning trades outweighs the total loss from losing trades over time. A positive expectancy gives a trader a statistical edge, which is essential for long-term success.
Negative Expectancy: A value less than zero ($ < 0$). This occurs when the total loss from losing trades is greater than the total profit from winning trades. A negative expectancy means that the system is a losing one, and the more you trade, the more you will lose. A high win rate can still result in negative expectancy if the average loss is significantly larger than the average win.
Calculate the average win and average loss plus win rate with our wide range of calculators.