Trading expectancy: the formula, examples, and what a good number is
Expectancy is the one number that tells you whether your trading makes money over time. Not your win rate, not your best month. Here's the formula, how to work it out from your own trades, and what to do when it comes out negative.
The short version
Expectancy = (win rate × average win) − (loss rate × average loss). It's what an average trade is worth. Above zero, you have an edge; below zero, more trades just lose more money. Work it out over at least 50 trades, and work it out separately for the trades where you followed your plan.
- It's based on fewer than 30 trades
- One huge winner is holding the whole number up
- It mixes trades from different setups
- It includes trades you took outside your plan
- It's based on 50 or more trades of the same setup
- It's calculated after commissions
- You also check it for plan-following trades only
- You track it in R so size changes don't distort it
The expectancy formula
Win rate and loss rate are fractions (0.45, not 45). Average win and average loss are both positive numbers. The result is what an average trade is worth, in dollars.
Example: you win 45% of trades, your average win is $300 and your average loss is $180. Expectancy = (0.45 × 300) − (0.55 × 180) = 135 − 99 = $36 per trade. Over 100 trades that's about $3,600.
Expectancy in R
Dollars change when your size changes, so many traders measure expectancy in R instead, where 1R is what you planned to risk on the trade. Van Tharp made this popular. The formula is the same, with wins and losses in R.
Example: 40% winners averaging 2.2R, 60% losers averaging 1R. Expectancy = (0.40 × 2.2) − (0.60 × 1) = 0.88 − 0.60 = 0.28R per trade. If you risk $100 a trade, that's $28 a trade. More on R in what R-multiple means.
What's a good expectancy?
- Below 0: you're losing money per trade, and more trades won't fix it.
- 0 to 0.1R: a thin edge. Commissions and one bad habit can erase it.
- 0.1R to 0.3R: a real edge for most day traders.
- Above 0.3R over a big sample: very good. Check it isn't one outlier.
The sample matters more than the number. Ten trades tell you almost nothing. Fifty of the same setup start to. A hundred is where I'd trust it.
The split that tells you what to fix
Work out expectancy twice: once for trades where you followed your plan, once for the rest. In almost every student's journal I go through, the plan-following trades have a positive expectancy and the others drag the total down. That gap is exactly what your discipline is costing you.
The win rate calculator works out expectancy from your wins and losses. Actal does it from your platform's export and splits it by setup, by grade and by mistake, so you see the gap without a spreadsheet. It's free while in beta.
Who wrote this
I'm Joakim. I trade index futures full time and coach traders one-on-one at Jusell Trading Academy. Expectancy is the first number I look at in a new student's journal.
Questions people ask
Drop in one export. In a minute Actal grades the trades it can, prices the mistakes you tagged, and tells you the first thing to fix. Free during beta, no card.
Full-time index futures trader. Coaches traders one-on-one at Jusell Trading Academy, five students at a time, since 2020. No platform was built for developing traders, so he had his own coaching software built; old students loved it and kept coming back, and Actal is that software turned into a proper journal for what matters.