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Market Foundations + Forex Mechanics · Risk Management Math

Expectancy math

Calculate the expected dollar value of a trading system from winrate, average win, and average loss.

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Market Foundations + Forex Mechanics

Risk Management Math

Lesson 58 of 11053%
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Lesson 58 of 110Market Foundations + Forex MechanicsRisk Management Math

Today's tiny win: make one idea click.

Calculate the expected dollar value of a trading system from winrate, average win, and average loss.

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What expectancy actually measures

Expectancy is the average dollars you can expect to make per trade if you repeat your setup many times. The formula is simple: winrate times average win, minus loss rate times average loss. If the result is positive, your system makes money over a large sample. If the result is negative, it loses money no matter how confident you feel mid-trade.

Wick points at a chalkboard with the expectancy formula and the worked example 40% of $30 minus 60% of $10 equals plus $6 per trade, teaching how to test if a system has an edge.ExpectancyWin% x avg winminus loss% x avg loss40%x$30 - 60%x$10 = +$6
Wick saysExpectancy is winrate times average win, minus loss rate times average loss.

Worked example. Say your system wins 40 percent of the time. Your average win is $30, your average loss is $10. Expected dollars per trade = 0.40 times $30, minus 0.60 times $10. That is $12 minus $6, which equals plus $6 per trade. Over 100 trades, that is roughly $600 of expected profit, before slippage and commissions.

Now flip it. A system wins 70 percent of the time, but the average win is $5 and the average loss is $20. Expected dollars per trade = 0.70 times $5, minus 0.30 times $20. That is $3.50 minus $6.00, which equals minus $2.50 per trade. The high winrate feels good. The math is losing money. Many beginners chase winrate and ignore the size of losses, which is exactly how high-winrate systems destroy small accounts.

Wick watches a balance scale where 70% wins of $5 weigh $3.50 and 30% losses of $20 weigh $6.00, so the loss side sinks, showing a high winrate system with no edge.Wins 70%x $5= $3.50Loss 30%x $20= $6.00?
Wick saysA 70% winrate can still lose money when the losses are much bigger than the wins.

On a $500 account with R discipline, expectancy is usually measured in R, not raw dollars. If 1R is $5, a system with +0.6R expectancy is making about $3 per trade in expected value. Over 100 trades, that is $300, or 60 percent of the account, assuming no compounding. The R framing keeps the math comparable across account sizes.

Wick holds a green card saying check winrate and loss size, and a coral card saying chase a high winrate only, teaching that winrate alone hides a losing system.Do thisCheck winrateAND loss sizeNot thisChase a highwinrate only
Wick saysLook at how big your losses are, not just how often you win.

Recap: expectancy = winrate x avg win, minus loss rate x avg loss. Positive = edge. Negative = no edge, regardless of winrate.

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1. System: 40 percent winrate, $30 avg win, $10 avg loss. What is the expectancy per trade?

2. A system has a 70 percent winrate but loses money. What is the likely cause?

3. Why is positive expectancy alone not a guarantee of survival?

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