What Is Expectancy?
Expectancy estimates the average outcome of a trading strategy over a large sample.
A simplified formula is:
Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss)
Example:
Win rate = 50%
Average win = £200
Loss rate = 50%
Average loss = £100
Expectancy:
(0.50 × £200) − (0.50 × £100)
= £100 − £50
= £50
The theoretical expectancy is £50 per trade before considering certain costs and real-world execution effects.
Important
This doesn’t mean your next trade will make £50.
It means the strategy’s historical or estimated average outcome may be positive.
Key Takeaways
- Expectancy looks at the bigger picture.
- Individual trades don’t determine whether a strategy works.
- Large samples are important.
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
