The expectancy formula
Expectancy is your average profit (or loss) per trade. A common form:
- Expectancy = (Win% × average win) − (Loss% × average loss)
If it’s positive, the system makes money over enough trades; if negative, no amount of position sizing saves it. It’s the cleanest single summary of an edge.
A worked example
Suppose you win 40% of trades, your average win is ₹3,000, and your average loss is ₹1,000.
Expectancy = (0.40 × 3,000) − (0.60 × 1,000) = 1,200 − 600 = ₹600 per trade. Despite winning less than half the time, you make ₹600 on average per trade — because the wins are larger than the losses.
Flip it: a 70% win rate with ₹1,000 wins and ₹3,000 losses gives (0.70 × 1,000) − (0.30 × 3,000) = 700 − 900 = −₹200. High win rate, negative edge.
Using expectancy to improve
Once you know your expectancy, improvement becomes concrete: raise average win, cut average loss, lift win rate, or reduce fees — and watch the number move.
Multiply expectancy by how many trades you take to estimate expected results over time. A journal that computes expectancy from your real trades turns vague hope into a measurable, improvable edge.