> ## Documentation Index
> Fetch the complete documentation index at: https://www.questforedge.io/llms.txt
> Use this file to discover all available pages before exploring further.

# What Is Expectancy in Trading?

#### **Direct Answer**

Expectancy in trading is the average amount a trader can expect to win or lose per trade over time, based on win rate, average win, and average loss.

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#### **In Simple Terms**

Expectancy tells you whether your trading system makes or loses money **on average** when repeated many times.

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#### **Quick Breakdown**

* Measures profitability per trade
* Combines win rate and risk/reward
* Determines if a system has an edge

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### The Expectancy Formula

E=(Pw×Aw)−(Pl×Al)E = (P\_w \times A\_w) - (P\_l \times A\_l)E=(Pw​×Aw​)−(Pl​×Al​)

Where:

* PwP\_wPw​ = probability of winning
* AwA\_wAw​ = average win
* PlP\_lPl​ = probability of losing
* AlA\_lAl​ = average loss

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### Example

* Win rate: 50%
* Average win: \$200
* Average loss: \$100

Expectancy:\
\= (0.5 × 200) − (0.5 × 100)\
\= 100 − 50\
\= **+\$50 per trade**

This means that, over time, each trade is worth +\$50 on average.

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### Why Expectancy Matters

Expectancy shows whether a system is actually profitable.

It helps answer:

> “If I repeat this system 100 times, what happens?”

A positive expectancy means:

* The system has a statistical edge

A negative expectancy means:

* Losses will accumulate over time

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### Expectancy vs Win Rate

A high win rate does not guarantee profitability.

Example:

* Win rate: 80%
* Risk-to-reward: 1:3

A few losses can erase many small wins.

Expectancy reveals the true performance of the system.

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### What Affects Expectancy

* Win rate
* Size of wins vs losses
* Risk per trade
* Consistency of execution

Even a strong system can fail if risk is applied inconsistently.

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### Common Mistakes

* Focusing only on win rate
* Ignoring average loss size
* Overestimating performance
* Changing strategy too often

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### Key Insight

Expectancy is what defines a trading edge.

> If expectancy is positive and risk is controlled, a system can be profitable over time.

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### Next Step

To understand how risk impacts long-term survival:

→ *What Is Risk of Ruin?*