WHAT EXPECTANCY ACTUALLY TELLS YOU.

The formula

Use dollars and you get expected dollars per trade. Use percentages and you get expected percentage return per trade. Use R multiples — where 1R is the amount you risked — and you get expectancy in R, which is the version most professionals quote because it is comparable across account sizes.

Why win rate alone tells you nothing

Two traders, a hundred trades each.

Trader A wins 70% of the time and loses money. Trader B is wrong on six trades out of ten and makes 1.8% per trade — over a hundred trades, a very different year.

This is why "what's your win rate?" is close to a useless question. A high win rate paired with a poor average win to average loss ratio is one of the most common ways a losing strategy feels like a winning one.

Expectancy in R multiples

If you risk a fixed amount per trade — say 1% of the account — you can express everything as multiples of that risk.

A trade that makes three times what you risked is +3R. One that hits your stop is −1R. Trader B above, risking 1R per trade with an average win of 3R:

Over 100 trades that is +60R. At 1% risk per trade, roughly a 60% gain before compounding. The R framing makes expectancy portable: it means the same thing on a $5,000 account as on a $500,000 one.

How many trades before the number means anything

Fewer than 30 trades and expectancy is mostly noise. Around 50 it starts to stabilise. Past 100 it becomes reasonably trustworthy — assuming you have not changed strategy mid-sample.

That last caveat matters more than the sample size. Expectancy calculated across two hundred trades spanning three different approaches and two different market regimes is an average of things that should never have been averaged. Segment first: by setup, by market condition, by position size. Aggregate expectancy is a summary. Segmented expectancy is a decision.

What to do with a negative number

A negative expectancy has exactly three levers, and it is worth knowing which one you are pulling:

• Raise the win rate — better entries, better setup selection, more patience. The hardest lever, and the one most traders reach for first.
• Raise the average win — hold longer, trail stops, scale out instead of exiting whole. Usually the easiest, because most traders exit winners far too early. MFE tells you exactly how much you are leaving behind.
• Cut the average loss — tighter stops, or simply honouring the ones you set. Also usually available, because a handful of oversized losses are often the entire problem.

Run the arithmetic before changing anything. Trader A does not need a better win rate — 70% is already excellent. They need the average loss to come down below 0.46% per point of win. Cutting the average loss from −5.0% to −4.0% flips them positive without a single change to their entries.

Expectancy is not a prediction

A positive expectancy does not mean your next trade makes money, or your next ten. It means that if the distribution holds, the average result per trade is positive. Variance around that average can be brutal — a strategy with +0.6R expectancy and a 40% win rate will produce losing streaks of six or seven regularly.

That is the point of knowing the number. It is the difference between a drawdown that means your edge is gone and a drawdown that is simply what a 40% win rate feels like from the inside.