Expectancy
Expectancy is the average amount a rule makes or loses per trade, after costs. It combines the win rate with the size of the wins and losses.
How Expectancy is calculated
Expectancy = (win rate x average win) - (loss rate x average loss). With 40 percent winners averaging 300 dollars and 60 percent losers averaging 150 dollars, it is 120 - 90 = 30 dollars per trade. Many people state it in R, the multiple of the amount risked, so results compare across trade sizes.
How it is read
A positive number says the sample made money on average. It does not say the next trades will.
Common mistakes
- Calculating it from a few trades. The error on the average is large until there are many.
- Leaving out fees and slippage.
- Mixing trades taken under different rules into one average.
What Tickfloor tested
Tickfloor has not published a backtest of a rule built only on Expectancy. It describes or manages something rather than giving a signal, so there is no strategy to score. It still shapes how any tested rule should be read.
Lessons that cover it
- Average result per trade, and Kelly sizing
- Your first paper-trading week
- A one-page trading plan, with rules you can check
- Reviewing your journal with numbers
- When to change, stop or grow a plan
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.