Risk Management

Trading Expectancy: Measuring Your Edge

Expectancy calculates the average amount you expect to win or lose per trade — the only true measure of edge.

Key rules

  1. Expectancy = (WR × Avg W) − (LR × Avg L)
  2. Positive expectancy = mathematical edge; negative = certain long-term loss
  3. Minimum 50–100 trades needed for a statistically reliable sample
  4. Adjust setup criteria if expectancy is marginal or negative
  5. Use expectancy to compare different strategies objectively

Expectancy = (Win Rate × Avg Win) − (Loss Rate × Avg Loss). A positive expectancy means your strategy makes money over enough trades. A negative expectancy means it loses regardless of individual results.

Track all trades for a minimum of 50–100 to calculate a statistically meaningful expectancy.

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