Expectancy
What does a strategy earn on average per trade once wins and losses are combined?
In plain words
Expectancy is the average amount a trading method makes or loses per trade over many trades. It combines how often a trade wins with how big the wins are compared with the losses, so a high win rate alone does not tell you the answer.
Why it matters
A system can win most of the time and still lose money if its losses are much larger than its wins. Expectancy turns a record of many trades into a single number that says whether the pattern is worth risking capital on, before fees and slippage.
In a real week: ETH, week of 18 March 2024
ETH in the week of 18 March 2024 shows why expectancy needs both sides of the ledger. Its best day, 20 March, gained 11.33%, while its worst day, 19 March, fell 10.28%, and the week as a whole closed down 5.21% from 3644.7 to 3454.98. A large winning day was not enough to offset the losses.
A common mistake
Judging a strategy by its win rate alone. Expectancy also depends on the size of each win relative to each loss, so a high win rate can hide a negative average result.