Concept
Expectancy and Win Rate
Expectancy is the average outcome per trade, combining how often a method wins with how much it wins and loses. Win rate alone is not informative without the size of each outcome.
How it is calculated
How to read it
- A high win rate with small wins and large losses can produce negative expectancy; a low win rate with large wins can be positive.
- It must be computed after costs. Brokerage, statutory charges and slippage all reduce it, and on frequent trading they can consume the entire figure.
- It is an average across many trades and says nothing about any individual one.
What it does not tell you
- Small samples are unreliable. Thirty trades is not enough to distinguish a positive-expectancy method from a lucky one.
- Expectancy computed on past trades assumes conditions persist. It is a description of a sample, not a property of the method.
- A few outlier wins can dominate an average, making expectancy look robust when it rests on two or three results.
Frequently asked questions
What is a good win rate?
There is no good win rate in isolation. A 30% win rate with large winners can be positive; an 80% win rate with occasional large losses can be negative. Win rate is only meaningful alongside the size of wins and losses.
How many trades do I need to judge a strategy?
More than most traders use. Small samples are dominated by variance, and outcomes over a few dozen trades cannot reliably separate skill from luck.
Should expectancy include costs?
Yes. Expectancy before costs is not the figure that matters, and for higher-frequency approaches costs can exceed the gross edge entirely.
Can expectancy change over time?
It is calculated from a sample, so it changes as new trades are added and as conditions change. It describes what has happened rather than fixing what will.
Related
- Risk-Reward Ratio — Strategy
- Drawdown — Concept
- Slippage — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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