Skip to main content

​
Expectancy

Expectancy is the single most important piece of data for telling whether a strategy actually makes money — it looks at average profit, not win rate. In short, it tells you how much you earn per trade, on average, with this strategy.

​
The Coin-Flip Game

Let’s play a simple coin-flip game with these rules:
  • Heads: +$200
  • Tails: -$100
The win rate is obviously 50%. But what happens if you play this game 100 times?
Add the total gains (A) and total losses (B) and you get +5,000.Dividebythenumberofgamesandyouget\+5,000. Divide by the number of games and you get \+50 per game. That +$50 is the expectancy. It means every time you play this game, you earn $50 on average over the long run. Now let’s keep the same game but change the payouts:
  • Heads: +$100
  • Tails: -$150
The win rate is still 50%, but the expectancy is -$25. In other words, even with the same win rate, this is a game you are guaranteed to lose. Starting to make sense?

​
How to Read Expectancy

Here’s how to interpret your per-trade expectancy. If your expectancy is +0.42R, read it like this:
“Every time I trade, I earn on average 42% of the risk (SL) I took on.”
If you risk $1,000 on every trade, the results look like this:
  • +$420 per trade on average
  • +42,000∗∗over100trades,∗∗\+42,000** over 100 trades, **\+420,000 expected over 1,000 trades
Of course, you don’t earn exactly 420everytime.Onetrademightmake\+420 every time. One trade might make \+2,000 and another might lose -1,000—buttheaverageconvergesto\+1,000 — but the average converges to \+420.

​
Expectancy Benchmarks

​
3 Ways to Improve Expectancy

  1. Raise your win rate: Make your entry conditions stricter to improve accuracy.
  2. Raise your average win: Improve your R/R by holding winners longer before taking profit.
  3. Cut your average loss: On losing positions, stop out exactly as planned — no exceptions.
Most traders obsess over #1. But improving #2 and #3 is far easier and far more effective. Keep a 50% win rate and simply move your R/R from 1:1 to 1:2, and your expectancy jumps from 0 to +0.5R.

​
R

R is the unit of risk you take on in a trade — put simply, the distance to your stop-loss. Case 1. Trader A
  • Enters a Bitcoin long at $90,000
  • Stop-loss (SL): $89,000
If A stops out, they lose 1,000.Inotherwords,therisktakeninthistradeis∗∗1R=1,000. In other words, the risk taken in this trade is **1R = 1,000**. Now let’s express the outcomes in R:
  • Take profit at 91,000→made91,000 → made 1,000, so +1R
  • Take profit at 91,500→made91,500 → made 1,500, so +1.5R
  • Take profit at 92,000→made92,000 → made 2,000, so +2R
  • Stop out at 89,000→lost89,000 → lost 1,000, so -1R

​
Why Express Things in R?

You could express expectancy in plain dollars. But expressing it in R lets you compare every trade on equal footing. Suppose trader A made these three trades: In dollar terms — +2,000 / +750 / -300 — it’s hard to tell which trade was most efficient. But in R terms — +2R / +1.5R / -1R — it’s immediately clear the first was the most efficient. Trader A’s average expectancy is +0.83R, meaning A earns 83% of their chosen stop-loss risk per trade.

​
The Win-Rate Trap

Expressed in R, expectancy follows this formula:
Case 1: A good trader
  • 40% win rate, average win +2.5R
  • 60% loss rate, average loss -1R
  • Expectancy = (0.4 × 2.5) - (0.6 × 1) = +0.4R
Even with just a 40% win rate, they earn 0.4R per trade on average. Over 100 trades, that’s an expected +40R. Case 2: A dangerous trader
  • 70% win rate, average win +0.8R
  • 30% loss rate, average loss -2.5R
  • Expectancy = (0.7 × 0.8) - (0.3 × 2.5) = -0.19R
A trader with a 70% win rate who loses money. Small frequent wins, occasional huge losses. This is the win-rate trap — and exactly why expectancy matters more than win rate. Stop being fooled by win rates. With positive expectancy you survive, with negative expectancy you lose — every time.

​
Relationship to Risk/Reward

This R concept is the foundation of expressions traders use all the time, like a 1:2 risk/reward ratio. R/R of 1:2 = risking 1R to make 2R = an R/R ratio of 2.0. In other words, you risk losing 1 to your stop for the chance to make 2 at your target.