A 70% win rate can lose money. A 30% win rate can make you rich. The difference? Expectancy — the single most important metric for predicting long-term trading success.
What Is Trading Expectancy?
Expectancy tells you the average profit (or loss) you can expect per trade over a large sample. It's calculated as:
Expectancy = (Win Rate × Avg Win) - (Loss Rate × Avg Loss)
If your expectancy is positive, you have an edge. If it's negative, you're gambling — even with a high win rate.
Real Example: Why Win Rate Lies
Trader A: 70% Win Rate, Losing Money
- • Win rate: 70%
- • Average win: +$50
- • Average loss: -$200
- • Expectancy: (0.70 × $50) - (0.30 × $200) = $35 - $60 = -$25
This trader wins 7 out of 10 trades but loses money because losses are 4× larger than wins.
Trader B: 30% Win Rate, Making Money
- • Win rate: 30%
- • Average win: +$500
- • Average loss: -$100
- • Expectancy: (0.30 × $500) - (0.70 × $100) = $150 - $70 = +$80
This trader wins only 3 out of 10 trades but makes money because wins are 5× larger than losses.
How to Calculate Your Expectancy
You need three numbers from your trade history:
- Win rate: (Winning trades ÷ Total trades) × 100
- Average win: Sum of all winning trade P&L ÷ Number of winners
- Average loss: Sum of all losing trade P&L ÷ Number of losers
Then plug into the formula. For example, if you have:
- 100 trades total
- 60 winners averaging +$120 each
- 40 losers averaging -$80 each
Win Rate = 60 ÷ 100 = 60%
Loss Rate = 40 ÷ 100 = 40%
Expectancy = (0.60 × $120) - (0.40 × $80)
Expectancy = $72 - $32 = +$40 per trade
What's a Good Expectancy?
- Negative expectancy: You're losing money long-term. Stop trading this strategy.
- $0 to $20: Breakeven to slight edge. Consider improving risk management.
- $20 to $50: Solid edge. This is sustainable if consistent.
- $50+: Strong edge. This is professional-level expectancy.
How to Improve Your Expectancy
You can improve expectancy in three ways:
1. Increase Average Win
Let winners run longer. Most traders exit too early.
Action: Review your MFE (Maximum Favorable Excursion) vs actual exit. If MFE is consistently higher, you're leaving money on the table.
2. Decrease Average Loss
Cut losses faster. Most traders hold losers too long.
Action: Review your MAE (Maximum Adverse Excursion). If you're consistently holding past your stop, tighten your exit rules.
3. Increase Win Rate (Less Impact)
Better entries and trade selection.
Action: Analyze your best-performing setups. What do winning trades have in common? Trade more of those, less of everything else.
The Bottom Line
Win rate is a vanity metric. Expectancy is reality. A trader with 30% win rate and +$80 expectancy will outperform a trader with 70% win rate and -$25 expectancy every single time.
Calculate your expectancy from your last 50-100 trades. If it's negative, you need to change something. If it's positive but low, focus on improving your average win-to-loss ratio.
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InsightTrader calculates expectancy, win rate, profit factor, and 70+ other metrics automatically from your trade history.
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