What Is Expectancy in Trading? Formula and Examples

Expectancy is the average amount you make or lose per trade. In R, expectancy = (win rate × average win) − (loss rate × average loss), or simply your total R divided by the number of trades. A setup with an expectancy of +0.3R makes, on average, three-tenths of what you risk on each trade; a negative figure means it loses money over time, whatever its win rate. It's the single most useful number in a trading journal, because it combines how often you win with how much.

#The expectancy formula

There are two equivalent ways to work it out.

From the averages:

Expectancy = (win rate × average win) − (loss rate × average loss)

where the average loss is written as a positive number.

From the totals:

Expectancy = total result ÷ number of trades

Both give the same answer. The first shows why the number is what it is; the second is quicker in a spreadsheet: =AVERAGE() of your R column.

You can work in R multiples or in money. In R, every trade is measured against what you risked, so results at different sizes compare fairly. If R is new to you, start with how to calculate R multiple.

#Worked example in R

A setup has 40 trades: 16 winners averaging +2.1R and 24 losers averaging −0.9R.

• Win rate = 16 ÷ 40 = 40%; loss rate = 60%
• (0.40 × 2.1) − (0.60 × 0.9) = 0.84 − 0.54 = +0.30R per trade
• Check with totals: (16 × 2.1) − (24 × 0.9) = 33.6 − 21.6 = 12.0R; 12.0 ÷ 40 = 0.30R

So, over those 40 trades, each one made on average 0.3 of the amount risked.

#The same in money

If your usual 1R is $250, +0.30R is $75 a trade on average. Expectancy in money is just expectancy in R multiplied by your risk per trade, which is why R is the better measure for review: double your size and the money doubles, but the R stays the same.

(Figures are for illustration. Past results don't predict future ones.)

#Win rate alone can mislead

Two illustrative setups:

	Setup A	Setup B
Win rate	70%	35%
Average win	+0.4R	+2.5R
Average loss	−1.2R	−1.0R
Expectancy	(0.7 × 0.4) − (0.3 × 1.2) = −0.08R	(0.35 × 2.5) − (0.65 × 1.0) = +0.225R

Setup A wins seven times in ten and still loses money; Setup B loses most of the time and makes money. Win rate feels good or bad trade by trade, but expectancy is what decides the result.

#Breakeven win rate

For any ratio of average win to average loss, there's a win rate where expectancy is exactly zero:

Breakeven win rate = average loss ÷ (average win + average loss)

For Setup B: 1.0 ÷ (2.5 + 1.0) = 28.6%. Above that win rate it makes money; below, it doesn't. For Setup A: 1.2 ÷ (0.4 + 1.2) = 75%, which it falls short of.

This is a handy check when a setup's win rate drifts. It tells you how much room there is before the setup stops paying.

#Why small samples mislead

Expectancy is an average, and averages of a few numbers swing about. One illustrative example: 20 trades total +4R, an expectancy of +0.20R. But one of them was a single +8R winner. Without it, the other 19 trades total −4R, an expectancy of −0.21R.

Is the setup good, or did one trade carry it? With 20 trades you can't tell yet. Ways to keep yourself honest:

• Look at the median R as well as the average, to see whether a few outliers dominate.
• Check expectancy without your biggest winner. If it flips negative, be cautious.
• Let the sample grow before you drop a setup or lean on it.
• Compare periods. A setup whose expectancy holds across several months is telling you more than one strong month.

#Expectancy by setup, not just overall

Your overall expectancy blends everything you trade. Split it by setup and you often find one or two that do the work and one that gives it back, plus trades with no setup at all. That's where your playbook should come from; see how to write a trading setup playbook.

Splitting by other things helps too: rules kept against rules broken, time of day, and how you felt. Each split answers a different question in your weekly review.

#Expectancy and fees

Work expectancy from net results, after commissions, if you can. On short-term futures trades, fees can be a noticeable share of a small average. If your R figures are from prices only (before fees), compare them with your net P&L now and then, so you know how much fees take.

#Expectancy and profit factor

Profit factor is gross profit divided by gross loss. It uses the same trades as expectancy but answers a slightly different question: how many pounds or dollars you make for each one you lose, rather than how much per trade. For the 40-trade example above, it's 33.6 ÷ 21.6 = 1.56. See what is profit factor.

#How to track expectancy in your journal

1. Record the initial stop on every trade, so each has an R.
2. Name the setup from a short, fixed list.
3. Average the R by setup, by month and by rules kept.
4. Note the sample size next to every figure.

Marble shows expectancy in R for each period and each setup in your playbook, with profit factor alongside, so you can see which setups pay without building the sums yourself.

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Marble works out your expectancy by setup from the trades you log or import. See how it works.

Marble is a trading journal. Nothing here is financial advice.