Trade Expectancy

Trade Expectancy is the mathematical average profit or loss that a trader can expect to earn per trade over the long run. It is calculated by multiplying the probability of winning by the average win size and subtracting the product of the probability of losing and the average loss size.

This metric is the most important indicator of a strategy's long-term viability, as it accounts for both the win rate and the magnitude of gains versus losses. A positive expectancy indicates that the strategy will be profitable over time, while a negative expectancy suggests it will eventually lose money.

In the derivative and crypto markets, understanding expectancy is essential for position sizing and capital allocation. It allows traders to objectively assess whether a strategy has a positive edge.

By focusing on expectancy rather than individual trade outcomes, traders can maintain the discipline required for long-term success. It is the core metric for evaluating the statistical edge of any trading system.