Expectancy
The average dollar amount you expect to make per dollar risked, calculated from your win rate and average win/loss sizes.
Formula
Expectancy = (Win Rate × Avg Win) − (Loss Rate × Avg Loss)
Expectancy is the single most important number in a trader's statistics. It tells you whether your system makes or loses money on average per trade, and by how much.
A positive expectancy means the strategy is mathematically sound — grind the edge long enough and profit accumulates. A negative expectancy means no amount of discipline or money management saves the account in the long run.
Expectancy also reveals what to optimise: a low win rate with large wins can have higher expectancy than a high win rate with small wins.
Example
Win rate 40%, avg win $300, avg loss $150. Expectancy = (0.40 × $300) − (0.60 × $150) = $120 − $90 = $30 per trade. A positive edge — keep executing.
Related Terms
Asymmetric Risk
A trade or strategy where the potential reward significantly outweighs the potential loss — the core of every high-quality setup.
IntermediateDrawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerEquity Curve
A chart plotting account balance over time across all trades, showing the overall trajectory and drawdown periods of a trading strategy.
BeginnerKelly Criterion
A formula that calculates the theoretically optimal fraction of capital to risk per trade to maximise long-run account growth without ruin.
AdvancedProfit Factor
Gross winning trades divided by gross losing trades. A profit factor above 1.5 indicates a reliable positive edge.
BeginnerR-Multiple
A trade's result expressed as a multiple of initial risk. A trade that earns 2× the amount risked is a +2R winner.
IntermediateRisk of Ruin
The statistical probability that a trader will lose enough capital to be forced out of trading entirely, given their edge and risk per trade.
AdvancedRisk-Reward Ratio
The ratio of potential profit to potential loss on a single trade. A 1:2 R:R means you risk $1 to make $2.
BeginnerSharpe Ratio
Return per unit of total risk — how much reward you earn for each unit of volatility taken. Higher is better.
IntermediateSortino Ratio
A Sharpe variant that divides excess return only by downside deviation, ignoring upside volatility as a "risk".
AdvancedTrade Journal
A systematic record of every trade including entry, exit, size, reasoning, and outcome — the primary tool for improving a trading edge.
BeginnerWin Rate
The percentage of trades that close at a profit. High win rate does not guarantee profitability without a favourable risk-reward ratio.
Beginner