What expectancy means
Expectancy is the average result of one trade, measured over many trades. It is usually expressed in R, where R is the amount you risk on a trade, the distance from your entry to your stop. A trade that wins twice what it risked is worth +2 R, and a trade stopped out is worth -1 R.
The formula is simple. Expectancy equals the win rate multiplied by the average win, minus the loss rate multiplied by the average loss. If the result is positive, the strategy makes money on average. If it is negative, it loses money on average, whatever the win rate looks like.
A strategy that loses six trades out of ten and still makes money
Take a strategy that wins 40 percent of the time, earns 2 R when it wins and loses 1 R when it loses. The expectancy is 0.4 times 2, minus 0.6 times 1, which gives +0.2 R per trade. Over 100 trades, the expected result is +20 R, even though 60 of those trades lose.
If you risk 1 percent of your account on each trade, +20 R is roughly +20 percent before costs and before the effect of compounding. The point is not the exact figure but the mechanism: small losses and larger wins can add up to a profit with a low win rate.
A strategy that wins seven trades out of ten and loses money
The opposite also happens. Take a strategy that wins 70 percent of the time but earns only 0.3 R per win and loses 1 R per loss. The expectancy is 0.7 times 0.3, minus 0.3 times 1, which gives -0.09 R per trade. It wins often, feels good, and slowly loses money.
This pattern is common with strategies that close winners very early and let losers run. A high win rate is easy to produce. A positive expectancy is not.
Why R is a better unit than money
Measuring in R removes the size of the account and the size of the position from the comparison. A result of +0.2 R means the same thing on a small account and on a large one, and it lets you compare strategies that trade different instruments with different stop distances.
It also connects directly to risk management. If you know your expectancy in R and the percentage of the account you risk per trade, you can estimate what a series of trades is worth, and what a bad streak can cost.
Expectancy needs enough trades
An expectancy computed on 20 trades is mostly noise. The same strategy can show +0.5 R on one sample and -0.2 R on the next. The more trades behind the figure, the more it can be trusted, which is why a result should always be read together with its sample size.
The guide on sample size explains how quickly the uncertainty shrinks, and why overlapping trades can make a sample look larger than it really is.
Costs reduce expectancy
Spreads, commissions and slippage are paid on every trade, win or lose. Expressed in R, a cost of 0.1 R per trade removes 0.1 R from the expectancy. A strategy at +0.15 R before costs is left with +0.05 R after them, and a strategy at +0.05 R before costs becomes negative.
Where to see expectancy in ATLAS
The signal statistics page reports the average gain in R for each strategy, time frame, direction and market, with the number of signals behind it. The strategy lab reports expectancy for each test you run, together with win rate, drawdown and the number of trades.
Frequently asked questions
What is a good expectancy?
Any positive expectancy after costs means the strategy made money on average over the sample. How much is enough depends on how many trades you take and on how stable the figure is. A small positive value on a small sample proves little.
Is expectancy the same as profit factor?
No. Profit factor divides gross profit by gross loss over a period. Expectancy is the average result per trade in R. Both can describe the same strategy, but they answer different questions.
Can I have a high win rate and a negative expectancy?
Yes. If the average win is much smaller than the average loss, a strategy can win most of its trades and still lose money.
See it in ATLAS
Signal Statistics
Buy or sell: which strategy works best, on which timeframe and on which market.
Strategy Lab
Describe a strategy in plain words or paste a Pine Script; ATLAS turns it into rules and measures it.
Signals
Every strategy signal across your markets, with the measured statistics of that exact setup.
Terms used in this guide
Expectancy, R multiple, Win rate, Profit factor, Sample size.
More guides
This guide explains methods and arithmetic. It is not financial advice, and past results do not guarantee future ones. Read the risk disclosure.
