Expectancy: The Number Behind It All

Expectancy is the average outcome of a trade, expressed in R, the risk unit. Counting a full loss as minus one R, expectancy is the win rate times the reward-to-risk ratio, minus the loss rate. In symbols, W times R minus one minus W. A strategy that wins forty percent of the time at a reward-to-risk of two and a half has an expectancy of nought point four times two point five minus nought point six, which is one minus nought point six, or plus nought point four R per trade. That single figure captures the edge that win rate and average win only describe in part.

The sign of expectancy is the first question to ask of any strategy. A positive expectancy means that, on average, each trade adds R-multiples to your account over the long run, and the survival and sizing tools in this path exist to let that edge compound safely. A negative expectancy means the opposite: the strategy loses on average, and no amount of clever position sizing, discipline, or risk management can turn a negative edge positive. Sizing decides how a positive edge is harvested and how a negative edge is delayed, never whether the edge exists.

Because expectancy folds win rate and reward-to-risk into a single number, it lets you compare strategies that look nothing alike. A high-win-rate scalping system with small winners and a low-win-rate trend system with rare large winners can have identical expectancy, and the figure tells you they are equally good edges per trade, differing only in their path and feel. Multiplying expectancy by how many trades you take, and by the size of one R, turns it into expected profit, which is why it is the number every other decision ultimately serves.