Evaluating Win Rate and Expectancy — Developing a Trading Process

The expectancy formula

Expectancy measures the average amount a strategy makes or loses per trade, combining win rate with the size of wins and losses: Expectancy = (Win rate × Average win) − (Loss rate × Average loss).

This single number tells you far more than win rate alone, because it accounts for how big the wins and losses actually are, not just how often each occurs.

[Read the lesson: Evaluating Win Rate and Expectancy](/learn-to-trade/developing-a-trading-process/evaluating-win-rate-and-expectancy)

Worked example

Consider a strategy with a 40% win rate, an average win of $300, a 60% loss rate, and an average loss of $150. Expectancy = (0.40 × $300) − (0.60 × $150) = $120 − $90 = $30 per trade.

This means that even though the strategy loses more often than it wins, each trade is expected to generate $30 on average over a large number of trades, because the wins are roughly twice the size of the losses.

**Low win rate, positive expectancy:** Win rate 40%, average win $300, loss rate 60%, average loss $150. Expectancy = 0.40 × 300 − 0.60 × 150 = 120 − 90 = $30 per trade. Over 100 trades, this strategy is expected to net roughly $3,000 before costs, despite losing the majority of individual trades.

[Read the lesson: Evaluating Win Rate and Expectancy](/learn-to-trade/developing-a-trading-process/evaluating-win-rate-and-expectancy)

High win rate can still be unprofitable

Now consider a strategy with a 70% win rate, an average win of $80, a 30% loss rate, and an average loss of $220. Expectancy = (0.70 × $80) − (0.30 × $220) = $56 − $66 = −$10 per trade.

Despite winning most of the time, this strategy loses money on average because the occasional losses are large enough to outweigh the frequent small wins — a pattern common in strategies that take quick small profits but let occasional losses run too far.

[Read the lesson: Evaluating Win Rate and Expectancy](/learn-to-trade/developing-a-trading-process/evaluating-win-rate-and-expectancy)

Using expectancy to compare and improve strategies

Expectancy lets you fairly compare strategies with very different win rates, since it reduces performance to a single comparable number per trade (and can be scaled to expected profit per week or month based on trade frequency).

It also highlights two separate levers for improvement: raising the win rate, or improving the average win-to-loss ratio. Chasing a higher win rate at the cost of a worse win/loss ratio can actually reduce expectancy, so both numbers should be considered together.

[Read the lesson: Evaluating Win Rate and Expectancy](/learn-to-trade/developing-a-trading-process/evaluating-win-rate-and-expectancy)