Trading Expectancy Formula: How to Calculate It
Trading expectancy is the average amount you can expect to make or lose per trade over a large number of trades. The formula is: expectancy = (win rate x average win) minus (loss rate x average loss).
If the result is positive, your results so far describe a system that makes money per trade on average. If it is negative, no amount of good feelings about your last winner changes the math. This article is education, not financial advice, and nothing here promises any trading result.
The expectancy formula
Expectancy combines three numbers you can pull from any trade log:
- Win rate: winning trades divided by total trades.
- Loss rate: losing trades divided by total trades (1 minus win rate, if you ignore breakeven trades).
- Average win and average loss: the mean dollar result of your winners and of your losers, with the loss expressed as a positive number.
Here is the formula written out:
Expectancy = (Win rate x Average win) - (Loss rate x Average loss)
The answer is in the same units as your inputs. Use dollars and you get dollars per trade. Use R-multiples and you get R per trade.
Worked example 1: a low win rate that works
Suppose you take 100 trades. You win 40 of them and lose 60. Your average win is $300 and your average loss is $150.
- Win rate = 40 / 100 = 0.40
- Loss rate = 60 / 100 = 0.60
- Win side: 0.40 x $300 = $120
- Loss side: 0.60 x $150 = $90
- Expectancy = $120 - $90 = $30 per trade
Over those 100 trades, the total is 40 x $300 = $12,000 in winners minus 60 x $150 = $9,000 in losers, which is $3,000. Divide by 100 trades and you get $30. The shortcut and the total agree.
Worked example 2: a high win rate that does not work
Now take 100 trades with a 60% win rate. Your average win is $100 and your average loss is $200.
- Win side: 0.60 x $100 = $60
- Loss side: 0.40 x $200 = $80
- Expectancy = $60 - $80 = -$20 per trade
Check it the long way: 60 x $100 = $6,000 won, 40 x $200 = $8,000 lost, net -$2,000 across 100 trades, or -$20 each. Winning six trades out of ten felt good and still lost money. For more on that trap, read win rate vs profit factor.
Expectancy in R-multiples
Dollar expectancy depends on how much you risk. If you risk $100 one month and $400 the next, the dollar figures are not comparable. R-multiples fix that.
R is the amount you risk on a trade, measured from your entry to your stop. If you risk $200, then a $400 profit is +2R and a $200 loss is -1R.
Take a trader who wins 45% of the time, averages +2.0R on winners and -1.0R on losers.
- Win side: 0.45 x 2.0 = 0.90R
- Loss side: 0.55 x 1.0 = 0.55R
- Expectancy = 0.90R - 0.55R = +0.35R per trade
If that trader risks $200 per trade, 0.35R is $70 per trade. Over 100 trades the arithmetic gives 100 x 0.35R = 35R, or $7,000, before commissions and fees. R-based expectancy lets you compare a $2,000 account with a $50,000 account and see whether the edge itself is the same shape.
Comparing three systems at a glance
| System | Win rate | Avg win | Avg loss | Expectancy per trade |
|---|---|---|---|---|
| Trend follower | 35% | 3.0R | 1.0R | (0.35 x 3.0) - (0.65 x 1.0) = 1.05 - 0.65 = +0.40R |
| Scalper | 70% | 0.5R | 1.0R | (0.70 x 0.5) - (0.30 x 1.0) = 0.35 - 0.30 = +0.05R |
| Overconfident swing | 55% | 1.0R | 1.5R | (0.55 x 1.0) - (0.45 x 1.5) = 0.55 - 0.675 = -0.125R |
The scalper wins seven in ten and still has the smallest positive edge, because a small average win leaves little room for error. Fees or slippage of just 0.05R per trade would erase it. The trend follower loses most of the time and has the strongest edge in the table.
The breakeven win rate
You can rearrange the formula to find the win rate you need to break even. If you write your payoff ratio as average win divided by average loss, then:
Breakeven win rate = 1 / (1 + payoff ratio)
- Payoff ratio of 2 (wins twice the size of losses): 1 / 3 = 33.3%
- Payoff ratio of 1: 1 / 2 = 50%
- Payoff ratio of 0.5 (wins half the size of losses): 1 / 1.5 = 66.7%
So a strategy that risks $2 to make $1 needs to win about two trades out of three just to stand still. This is why average win and average loss matter as much as how often you are right.
How to read your expectancy number
- Positive: your historical sample made money per trade on average. That is a starting point, not a guarantee.
- Near zero: costs decide the outcome. Commissions, spreads and slippage can push a thin edge negative.
- Negative: something has to change, usually risk per trade, exits, or which setups you take.
Three cautions keep the number honest.
- Sample size matters. Expectancy from 12 trades can swing wildly with one outlier. Many traders wait for at least a few dozen trades per setup before trusting the figure, and more is better.
- Include costs. Use net results after commissions and fees, or the formula flatters you.
- Measure per setup. One blended number can hide a profitable setup and a losing one. Tag trades by strategy and compute each separately.
How to track expectancy in a journal
You only need three inputs per trade: the result, the risk you took, and a label for the setup. From those you can compute win rate, average win, average loss and expectancy for any slice of your history.
Record the planned stop and risk before you enter, not after. Many traders find it far easier to review a month of trades when each one already has an R value attached. If you are starting from scratch, how to keep a trading journal covers what to write down, and how to review your trades shows how to turn the log into decisions.
Momentra's trade analytics and performance overview show stats like win rate and profit factor from your logged trades, and you can use journal notes and tags to group trades by setup and work out expectancy for each. The Free plan includes this.
FAQ
What is a good expectancy for a trading strategy?
Any consistently positive expectancy after costs means the strategy has made money per trade on average. Many traders aim for something meaningfully above zero in R terms, such as 0.2R or more, because small edges are easily erased by fees and slippage. What counts as good also depends on how many trades you take.
Is expectancy the same as profit factor?
No. Expectancy is the average result per trade. Profit factor is gross profit divided by gross loss. Both use the same trade data and they usually move together, but expectancy tells you per-trade value while profit factor describes the ratio of money won to money lost.
How many trades do I need to calculate expectancy reliably?
There is no magic number, but a handful of trades tells you very little. Aim for a sample of at least a few dozen trades per setup before relying on the result, and keep updating it as you add more. Larger samples reduce the influence of any single lucky or unlucky trade.
Can expectancy be negative with a high win rate?
Yes. If your average loss is much larger than your average win, a high win rate can still produce a negative expectancy. A 60% win rate with a $100 average win and a $200 average loss gives -$20 per trade.
Should I calculate expectancy in dollars or R?
Use R if your position size changes, because it lets you compare trades risking different amounts. Use dollars if you risk a fixed amount and want a direct sense of what each trade is worth. Many traders track both.
Put the formula to work
Expectancy is simple to calculate and easy to forget to measure. Log every trade with its risk and setup, and the formula becomes a routine check instead of a one-off exercise. Try Momentra free and start building the data that makes the number meaningful.
