What Is Positive Expectancy?

A trading strategy needs more than a few good trades. It needs positive expectancy.

Expectancy estimates the average outcome per trade based on the strategy's win rate and average win and loss.

A simplified formula is:

Expectancy = (Win rate × Average win) − (Loss rate × Average loss)

For example, suppose a strategy wins 45% of trades, with an average winner of $200 and an average loser of $100.

Expected result before trading costs:

0.45 × $200 − 0.55 × $100 = $35 per trade.

That does not guarantee future profits. The estimate depends on the quality and representativeness of the data.

Still, it encourages a better question than "How often do I win?"

Ask whether your strategy has a measurable edge after realistic costs and execution.