Expectancy

Win rate is the most misleading number in trading. A trader bragging about “80% win rate” sounds invincible - until you find out they take ₹100 wins and ₹1,000 losses. Expectancy cuts through that noise. It tells you the average rupees you make (or lose) per trade, across all trades combined.

The formula is straightforward: Expectancy = (Win Rate × Avg Win) − (Loss Rate × Avg Loss). If expectancy is positive, your system makes money over time. If it’s negative, you will lose money - eventually - no matter how good a single week looks.

Why win rate alone is a trap

Consider two systems. System A has a 40% win rate but the average winner is 3× the average loser. System B has a 75% win rate but the average winner is half the average loser. System A’s expectancy is +0.4R; System B’s is −0.125R. The “losing” trader (System A) is profitable. The “winning” trader (System B) is bleeding money - they just don’t notice for a while because they win often.

What changes when you track expectancy

Once you know your expectancy, three things happen. First, you stop chasing trade ideas that promise a high win rate but tiny profit targets. Second, you start asking “does this setup have an edge?” with actual math instead of feeling. Third, you size positions based on edge - bigger when expectancy is high, smaller when you’re testing something new.

Calculating expectancy needs a journal. You can’t eyeball it from memory because memory is biased toward recent trades and emotionally vivid ones (the big winner you bragged about, the gut-punch loss).