The expected outcome of a trade under a specified model, estimated, for example, by the mean of net trade results. It can be expressed in money or in units of initial planned risk, R. A positive historical average does not guarantee future profitability: estimation uncertainty, costs and the representativeness of the sample matter. See Edge and expected value.
Example. In a sample of 100 trades, 42 winners of 1.9R and 58 losers of 1R give (0.42 × 1.9) − (0.58 × 1) = 0.218R per trade. If all outcomes already include costs, the average is also net. At a constant R of USD 100, the total is USD 2,180. If R varies as a percentage of current equity, a total of 21.8R cannot automatically be converted into a 21.8% account return.
An estimate is not a promise
A historical average estimates an expected value under the assumptions used. It does not determine the next sequence's outcome with certainty. Describe dispersion, dependence, costs and sample selection. Neither 30 nor 100 trades automatically confirms a durable edge.
Use a consistent unit first
With varying size, calculate cash outcomes and R separately. Divide each trade by its own initial planned risk; do not change the denominator after moving the stop. An unweighted mean R describes the average trade, not direct account growth under changing position size.
Distribution and cost
Equal averages can conceal different drawdowns and rare severe losses. Break down results by period, instrument and execution conditions without selectively deleting losses. Deduct only costs not already in the data, and check dependence on an exceptional outcome.
FAQ
How is expectancy calculated?
As the mean of net outcomes in the selected unit. In a two-outcome model, use win probability times average gain minus loss probability times average loss magnitude. Include break-even observations and the actual definition of a trade.
Is a high win rate sufficient?
No. With 80% winners of 1R and 20% losers of 5R, the mean is −0.2R before additional costs.
How many trades are needed?
It depends on dispersion, dependence, market stability and the required precision, among other factors. A larger sample does not fix incorrect data or fitting rules to history. Use observations excluded from development.
How does expectancy differ from profit factor?
Expectancy is the average outcome per trade; profit factor is the sum of positive outcomes divided by the absolute sum of losses. Both require consistent treatment of costs and neither guarantees future profitability.
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