Expectancy: the only number that says whether a system works
Win rate alone tells you nothing. Expectancy combines it with reward-to-risk into the one figure that answers the real question.
Every trader eventually asks the same question: is this working? Profit does not answer it, because profit includes luck and size. Win rate does not answer it, because a 70% win rate can be a losing system. Expectancy answers it.
The formula
Expectancy = (win rate × R) − (1 − win rate), measured in R, where R is reward divided by risk.
It tells you the average result of one trade, expressed in units of what you risk. If the number is positive, taking the trade a hundred more times leaves you ahead. If it is negative, no amount of discipline or position sizing fixes it.
The table that ends the win-rate argument
| Win rate | R | Expectancy | Verdict |
|---|---|---|---|
| 70% | 0.3 | -0.09R | Feels great, loses money |
| 50% | 1.0 | 0.00R | Break even before costs |
| 45% | 2.0 | +0.35R | A real edge |
| 35% | 3.0 | +0.40R | A real edge, hard to trade |
The first row is the trap almost everyone walks into. A high win rate is produced by taking profit early and giving losers room, which feels wonderful and eventually produces one loss that erases months.
The last row is the opposite trap: a genuinely excellent system that is abandoned because being wrong two trades out of three is unbearable to sit through.
What positive expectancy actually pays
At 1% risk on a $10,000 account, 1R is $100. An expectancy of +0.2R is $20 a trade, $2,000 over a hundred trades, before costs. That is roughly a year of patient swing trading for a 20% return.
That is what a good retail edge looks like. Anyone promising substantially more per month is selling something, and the arithmetic above is how you can tell without needing to argue about it.
Costs come straight off the top
Spread, commission, funding and slippage all reduce the same number. A system at +0.1R before costs can be negative after them, which is why venue choice is not a side issue for an active trader. It is the difference between an edge and an expensive hobby.
You need a sample before you believe any of it
Around thirty trades before the shape is suggestive. Closer to a hundred before it is evidence. Below that, luck dominates completely, and a good month proves nothing.
There is also a human problem: almost everyone overstates their win rate from memory, because the two trades anyone recalls are the biggest winner and the most painful loss. The fix is a written record. The trading journal computes expectancy from every closed trade rather than from the ones you remember.
What to do with this
- Never quote a win rate without the R that goes with it.
- Run your numbers through the risk and reward planner before taking the setup, not after.
- Then test survival, not just profitability, in the risk of ruin simulator, using a win rate five points below what you believe.
Ready to pick where to trade?
Once the basics click, match to a broker that fits your country and capital.