Trading foundations · 4 min read · Free lesson
Expectancy: what the average tells you
Combine outcome frequency, win size, loss size and trading costs.
At a glance
40% wins × $150
+$60 per trade
60% losses × $80
−$48 per trade
$60 − $48 − $5 costs
+$7 per trade
Illustrative example · Hypothetical amounts in one currency
Combine frequency and size
In a simplified example with no break-even trades, expectancy is win probability × average win, minus loss probability × average loss, minus average costs. If outcomes already include costs, do not subtract those costs again. Include break-even trades and their costs when calculating the average across a real sample.
Work through ten hypothetical trades
Four $150 wins total $600. Six $80 losses total $480. With $5 costs on each of ten trades, the net is $70, or $7 per trade. A 40% win rate can therefore accompany a positive average. If average costs rose to $15, the same pre-cost outcomes would average −$3 per trade.
Keep an estimate separate from a promise
An average calculated from recorded trades describes that sample. It is not a guaranteed payment on each trade or proof that the next period will behave similarly. Review sample size, losing sequences, unusually large winners and changes in execution or conditions before drawing conclusions.
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