EXPECTANCY: The Golden Key Statistic
What is Expectancy?
Expectancy is the one of the most important statistics in trading. Expectancy is how much you expect to make per trade. If you have an expectancy of 0.3 that means you make 30% of your average risk per trade. If you risk $1000 per trade, then you would receive $300 on average for EVERY time you took a trade.
The baseline for a worthwhile & profitable strategy for most traders is an expectancy of 0.25 or higher. Anything more than 0.5 is outstanding.
How do you calculate expectancy?
A few different ways:
(gross profit/# of trades)/Avg. Risk
or
((Win%*Avg. Win)-(1-Win%*Avg. Loss))/Avg. Risk
The table on the chart breaks down the required Win% and Profit/Loss ratio needed for an expectancy greater than 0.25. As you can see there are multiple ways to build a profitable strategy.
What does Expectancy tell you?
Expectancy is a crucial stat for traders because it lets them know if their strategy is valuable. The only way to know your expectancy is to track your trades! Tracking your trades is an essential part of the job as a trader yet many fail to do so. It can be done for free with some simple spreadsheet formulas and a bit of time. Track your trades, review your stats, improves your trades. Rinse & repeat.
Thanks for reading, follow JLaing for more educational post about Money Management, Trading Stats, and more. I also stream a stock day trading chat room every morning at 9:15 EST right here on TradingView, come check it out and say what's up.
Expectancy is the one of the most important statistics in trading. Expectancy is how much you expect to make per trade. If you have an expectancy of 0.3 that means you make 30% of your average risk per trade. If you risk $1000 per trade, then you would receive $300 on average for EVERY time you took a trade.
The baseline for a worthwhile & profitable strategy for most traders is an expectancy of 0.25 or higher. Anything more than 0.5 is outstanding.
How do you calculate expectancy?
A few different ways:
(gross profit/# of trades)/Avg. Risk
or
((Win%*Avg. Win)-(1-Win%*Avg. Loss))/Avg. Risk
The table on the chart breaks down the required Win% and Profit/Loss ratio needed for an expectancy greater than 0.25. As you can see there are multiple ways to build a profitable strategy.
What does Expectancy tell you?
Expectancy is a crucial stat for traders because it lets them know if their strategy is valuable. The only way to know your expectancy is to track your trades! Tracking your trades is an essential part of the job as a trader yet many fail to do so. It can be done for free with some simple spreadsheet formulas and a bit of time. Track your trades, review your stats, improves your trades. Rinse & repeat.
Thanks for reading, follow JLaing for more educational post about Money Management, Trading Stats, and more. I also stream a stock day trading chat room every morning at 9:15 EST right here on TradingView, come check it out and say what's up.
Disclaimer
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