Expectancy
Definition
Expectancy is the average profit (or loss) per trade, computed as (win rate × average win) − (loss rate × average loss). Positive expectancy is mandatory for any viable trading system. A strategy with positive expectancy will make money over many trades regardless of short-term variance; a strategy with negative expectancy cannot be saved by money management.
Formula
E = (P_{win} \cdot \overline{W}) - (P_{loss} \cdot \overline{L})E = (probability of win × average win) − (probability of loss × average loss)
In-depth: Expectancy
Expectancy is the bedrock metric of any trading system evaluation. Without positive expectancy, no money management technique can produce sustainable profits — variance averages out over time, and a negative-expectancy strategy approaches ruin asymptotically.
Formal definition (dollar terms): E = (P_win × avgWin$) − (P_loss × avgLoss$)