Trading Expectancy — How Win Rate and Risk-Reward Determine Profit

Win rate tells you how often you are right. Risk-reward tells you how much you make when right vs how much you lose when wrong. Expectancy combines both into a single number: your average profit per trade over time. It is the only number that tells you whether your trading strategy actually works.

The Expectancy Formula

Expectancy = (Win% x Average Win) - (Loss% x Average Loss)

Or in R-multiples (risk units):

Expectancy = (Win% x Average R-Multiple) - (Loss% x 1R)

Expectancy at Different Win Rate + R:R Combinations

Win Rate	R:R 1:1	R:R 1.5:1	R:R 2:1	R:R 3:1	R:R 4:1
30%	-$200	-$75	+$100	+$400	+$700 per $500 risked
35%	-$150	+$13	+$200	+$525	+$850
40%	-$100	+$100	+$300	+$650	+$1,000
45%	-$50	+$188	+$400	+$775	+$1,150
50%	$0	+$275	+$500	+$900	+$1,300
55%	+$50	+$363	+$600	+$1,025	+$1,450
60%	+$100	+$450	+$700	+$1,150	+$1,600

Negative values (red) = losing strategy. $0 = breakeven. Positive = profitable. Notice: even at 30% win rate, a 2:1 R:R produces positive expectancy (+$100 per trade). A 60% win rate at 1:1 only produces +$100 - the same result with twice the effort.

How to Calculate Your Personal Expectancy

1. Review your last 20-50 trades (more is better for accuracy)
2. Separate wins and losses: Count the number of each
3. Calculate win rate: Wins / Total trades
4. Calculate average win: Total profit from winners / Number of winners
5. Calculate average loss: Total loss from losers / Number of losers
6. Apply the formula: (Win% x Avg Win) - (Loss% x Avg Loss)

If the result is positive, your strategy works. If negative, either your win rate or your R:R (or both) needs improvement. The formula tells you exactly which lever to pull.

Improving Your Expectancy

There are only two levers: win rate and R:R ratio.

Approach	What Changes	Tradeoff
Better entries (tighter stop)	R:R improves	More stop-outs from noise
Better exits (wider target)	R:R improves	More trades that reverse before target
Better trade selection	Win rate improves	Fewer trades (less action)
Cutting losses faster	Average loss decreases	Some trades get stopped out prematurely
Letting winners run	Average win increases	Some profits give back before exit

Most traders should focus on R:R first. Improving win rate from 40% to 45% helps, but improving R:R from 1.5:1 to 3:1 transforms your results. The calculator makes R:R evaluation instant.

The Minimum 100-Trade Test

Expectancy needs a large sample to be meaningful. 10 trades tells you nothing - you might have gotten lucky or unlucky. 100 trades starts to reveal your true edge (or lack of one). Track every trade, calculate expectancy at 50, 100, and 200 trades. If it is consistently positive, you have a real strategy. If it fluctuates between positive and negative, you are gambling.

Calculate Your Trades

• Risk Reward Calculator - R:R for individual trades
• Position Size Calculator - size positions based on risk
• Stock Profit Calculator - dollar P&L at any exit