How can we calculate expectancy?

<p id="isPasted">To calculate the expectancy ratio, you must first calculate the reward-to-risk ratio, the win ratio, and the loss ratio, as demonstrated previously. It is best to keep these in the decimal form if you plan to use a calculator.</p><p>To calculate the expectancy ratio, multiply the reward to risk ratio by the win ratio, and then subtract it from the loss ratio.</p><p>The formula is as follows:&nbsp;</p><p>(Reward-to-Risk Ratio X Win Ratio) - (Loss Ratio) = Expectancy Ratio</p><p>For example:</p><p>&nbsp;Reward-to-Risk: 1&nbsp;</p><p>Win Ratio: 0.6 or 60%&nbsp;</p><p>Loss Ratio: 0.4 or 40%&nbsp;</p><p>(1 X 0.6) - (0.4) = 0.2&nbsp;</p><p>Therefore, this trade will return 0.2 times the size of your losing trades. It has a positive expectancy, meaning it will turn a profit, and a number you can use to compare it to other trade options.</p><p>For example:</p><p>&nbsp;Reward-to-Risk: 0.5&nbsp;</p><p>Win Ratio: 0.6 or 60%&nbsp;</p><p>Loss Ratio: 0.4 or 40%&nbsp;</p><p>(0.5 X 0.6) - (0.4) = -0.1&nbsp;</p><p>Even though the win ratio was higher than the loss ratio, the expectancy ratio is still negative. The trade will return -0.1 times the size of your losing trades. As the expectancy is negative, you will likely lose money in the future and it is most likely not a good trade to make.</p>

<p id="isPasted">Expectancy = (Number of Profits * Average Profit Value) + (Number of Loss * Average Loss Value)&nbsp;</p><p>It is recommended that you have a record of at least 15 trades in order to estimate your expectancy accurately.&nbsp;</p><p>You can see from the formula that expectancy is positive if either the "Number of Profits" or "Average Profit Value" is high.&nbsp;</p><p>To increase expectancy, traders should aim for a higher average profit since it is difficult to ensure every trade is profitable. The risk-reward ratio is analogous to this.&nbsp;</p><p>Modern backtesting platforms already include expectancy in their backtesting reports.</p>

<p id="isPasted">Expectancy is a statistical measure that represents the average amount of profit or loss that can be expected on each trade or bet, based on historical data. It is calculated by multiplying the probability of a win or loss by the amount of profit or loss that is expected on each trade.</p><p>The formula for calculating expectancy is:</p><p>Expectancy = (Probability of Win x Average Win) - (Probability of Loss x Average Loss)</p><p>To calculate expectancy, you will need to gather historical data on your trades or bets, including the probability of a win or loss and the average amount of profit or loss on each trade. You can then plug these values into the formula to calculate your expectancy.</p><p>For example, let's say that you are a forex trader and you have analyzed your trading history over the past year. You have found that you have a 60% win rate, and your average profit on winning trades is $500, while your average loss on losing trades is $300.</p><p><br></p><p>Using the formula above, we can calculate your expectancy as follows:</p><p>Expectancy = (0.60 x $500) - (0.40 x $300)</p><p>Expectancy = $300 - $120</p><p>Expectancy = $180</p><p>This means that, on average, you can expect to make a profit of $180 on each trade. Of course, it's important to remember that expectancy is just a statistical measure, and it cannot predict the outcome of any individual trade or bet. It is simply a tool that can help you evaluate your trading or betting strategy over the long term.</p>

<p id="isPasted">To calculate expectancy, you need to know the following:</p><ul><li style="font-weight: bold;"><p><strong>Win rate: The percentage of trades that are winners.</strong></p></li><li style="font-weight: bold;"><p><strong>Average win: The average gain of winning trades.</strong></p></li><li style="font-weight: bold;"><p><strong>Average loss: The average loss of losing trades.</strong></p></li></ul><p>Expectancy can be calculated using the following formula:</p><p><strong>Expectancy = (Win rate x Average win) - ((1 - Win rate) x Average loss)</strong></p><p>For example, let’s say a trader has a win rate of 60%, an average win of $100, and an average loss of $50.</p><p>Using the formula above, their expectancy would be:</p><p><strong>Expectancy = (0.6 x $100) - ((1 - 0.6) x $50) Expectancy = $60 - $20 Expectancy = $40</strong></p><p>This means that, on average, the trader can expect to make a profit of $40 per trade over time.</p>