Expectancy
Trading expectancy is the average amount a trading approach is expected to gain or lose per trade based on its historical or assumed win rate and the size of its wins and losses. A simplified form is: Expectancy = (Win Rate × Average Win) − (Loss Rate × Average Loss)
Why it matters to you
Win rate alone does not tell you whether a trading approach is profitable. A trader can win frequently but lose money if losing trades are much larger than winners. Another trader can win less frequently but remain profitable if winning trades are sufficiently larger than losses.
Terms that sit next to this one
Average Win, Average Loss
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