Trade Expectancy

Expectancy is a mathematical formula that tells you how much you can expect to make (or lose) per trade over a large sample size. It combines your win rate with the average size of your wins and losses.

Most traders focus solely on increasing their "Win Rate." However, professional traders know that a strategy with a 40% win rate can be significantly more profitable than one with an 80% win rate if the average win is large enough.

• Win Probability: How often you win.
• Avg. Win: Your average profit in monetary terms.
• Avg. Loss: Your average loss in monetary terms.

If your expectancy is positive (e.g., +₹500 per trade), you simply need to execute your strategy with discipline over hundreds of trades to guarantee profitability, regardless of the outcome of any single trade.

To improve your expectancy, you have three levers:

1. Increase your Win Rate: Refine your entry/exit strategy.
2. Increase your Avg. Win: Let your winners run.
3. Decrease your Avg. Loss: Cut your losers quickly.

Your goal is to maintain a positive expectancy. If your testing shows negative expectancy, you do not have a strategy; you have a losing system that needs fundamental changes.