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Expectancy

Expectancy is your net P&L divided by your number of trades. It answers a simple question: if I take one more trade, what does it earn on average? Positive, your system makes money on every repetition. Negative, each extra trade costs you, and trading more will only speed up the loss.

The formula

Net P&L ÷ number of trades.

How to read it

What an average trade earns, winners and losers combined. Positive = winning system.

It is the figure that reconciles win rate and the size of your gains. A system that wins three times out of ten can have an excellent expectancy if the three winners each make five times what a loser loses. It is also the only figure that tells you what more volume will earn, provided nothing else changes.

The classic mistake

Computing it on too few trades. Over thirty trades, one large winner can flip expectancy from red to green and convince you the system works. It takes around a hundred trades before this figure stops being an anecdote.

To go deeper on this : read the full guide. Every term is gathered in the glossary.