Expectancy
Also known as: expected value per trade, average trade
What is it?
Expectancy is the average result you can expect from a single trade once you have taken many trades, based on past data. It blends two things into one number: how often the strategy wins and how big its wins and losses are. The formula multiplies the win rate by the average win, then subtracts the loss rate multiplied by the average loss. For example, a strategy that wins 40% of the time with average winners of $300 and average losers of $150 has a positive expectancy of about $30 per trade historically.
A positive expectancy means the average trade made money in the sample; a negative one means it lost money on average no matter how good individual trades looked. Expectancy is valued because it reduces an entire strategy to a single, bottom-line viability test that neither win rate nor reward-to-risk can give you alone. You can have a high win rate and still have negative expectancy if your losers are large, or a low win rate with strong positive expectancy if your winners are large. By combining both, expectancy answers the real question: does the average trade make money?
Two cautions matter. First, expectancy is only meaningful over a large enough number of trades; a tiny sample can be misleading. Second, it is calculated from historical or backtested results and is therefore an estimate of past behaviour, not a promise. Past performance does not guarantee future results, no strategy is risk-free, and your capital is at risk on every trade.
Why it matters: Expectancy reduces a whole strategy to one number - is the average trade positive? - making it the cleanest viability test.
Expectancy = (win % x average win) - (loss % x average loss)
Expectancy is the bottom-line test of whether a strategy makes money per trade on average.
Real-world example
Winning 40% with average wins of $300 and losses of $150 gives a positive expectancy of about $30 per trade.
How SignalBots handles it
Where SignalBots reports per-trade expectancy it is a historical estimate, shown with drawdown and a /risk-warning link.
Pro tip
A positive expectancy with enough trades is the goal; a single win rate or reward ratio in isolation cannot tell you this.
Common pitfalls
Optimising win rate or reward-to-risk alone and ending up with negative expectancy overall.
Frequently asked questions
What does positive expectancy mean?
That the average trade has historically made money after accounting for win rate and the size of wins versus losses. It is an estimate from past data, not a guarantee of future results.
Can a strategy with positive expectancy still lose money?
Yes. Expectancy is an average; over any short run you can hit a losing streak and lose money. It also relies on past data, so future conditions may erase the edge. Capital is always at risk.
How is expectancy different from win rate?
Win rate only measures how often you win. Expectancy combines win rate with the average size of wins and losses, so it tells you whether the average trade is actually profitable, not just frequent.
How many trades do I need for expectancy to be reliable?
Generally a large sample, since a small number of trades can be dominated by luck. The more trades across varied conditions, the more trustworthy the figure, though it still does not predict the future.
Is a higher expectancy always better?
A larger positive expectancy per trade is desirable, but you must also consider drawdown and how many trades produced it. A high figure from a tiny or over-tuned sample can be misleading.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.