The expectancy formula
Expectancy = (Win-rate × Average win) − (Loss-rate × Average loss). For a strategy with 50% win-rate, average winner of 2R, and average loser of 1R: (0.5 × 2) − (0.5 × 1) = 0.5R. That means each trade earns half a unit of risk in expected value. Across 100 trades, expected return is 50R.
Why expectancy beats win-rate
Most amateurs chase high win-rate strategies. A 90% win-rate strategy with 1R winners and 10R losers has an expectancy of (0.9 × 1) − (0.1 × 10) = -0.1R per trade. It loses money long-term despite winning 9 out of 10 trades. A 30% win-rate strategy with 5R winners and 1R losers has expectancy (0.3 × 5) − (0.7 × 1) = 0.8R per trade. It crushes the 90% strategy over time.
How to calculate your strategy's expectancy
Run at least 100 backtested trades on the exact challenge ruleset. Record win-rate, average winner (in R), and average loser (in R). Plug into the formula. If the result is below 0.3R per trade, the strategy may not have enough edge to survive variance during a challenge. Below zero means the strategy loses money long-term and must be reworked before paying for a challenge fee.
Related terms
Author
Maximilian Bossow
Independent prop-firm trader. Reached FTMO Platinum tier with verifiable Overall Rewards across multiple funded accounts. Founder of MB Capitals — a coaching system for traders who want to pass prop-firm challenges through structured risk management, not gurus. The proof is on the homepage: every cert, every payout, every receipt of what it took to get there.