Trading Expectancy: Why Win Rate Doesn't Matter
Expectancy, not win rate, determines profitability. Learn the formula that shows whether your strategy makes money. The formula that tells you if your.
What Is Trading Expectancy?
Expectancy is the average amount you expect to make or lose per trade. The formula: E = (W% × Avg Win) - (L% × Avg Loss). If you win 40% of the time with an average win of $300 and average loss of $100: E = (0.40 × 300) - (0.60 × 100) = 120 - 60 = +$60 per trade.
Why Win Rate Is Misleading
A 90% win rate with 1:0.1 risk-reward (risk $100 to make $10) gives: E = (0.90 × 10) - (0.10 × 100) = 9 - 10 = -$1 per trade. That's a losing strategy despite a 90% win rate. A 30% win rate with 1:4 risk-reward (risk $100 to make $400) gives: E = (0.30 × 400) - (0.70 × 100) = 120 - 70 = +$50 per trade. That's highly profitable.
Improving Expectancy
- Increase your reward-to-risk ratio — let winners run longer
- Cut losses faster — tighter stops reduce average loss
- Improve win rate — better entry timing increases win percentage
- Reduce costs — lower spreads and commissions directly improve expectancy
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.