What is Expectancy?
Expectancy is the average amount a strategy makes or loses per trade, combining how often it wins with how large its wins and losses are.
What does Expectancy mean in practice?
The calculation is the win rate times the average win, minus the loss rate times the average loss. A positive number means the average trade makes money. Zero or negative means there is no edge to scale: more trades only means more of the same average.
It is the cleanest single test of whether a rule is worth anything, because it cannot be gamed by a high win rate or by one lucky trade the way raw profit can. Like every backtest metric it describes a sample and is an estimate, not a guarantee.
A worked example
Illustrative only: win rate 40%, average win 300, average loss 150. Expectancy is 0.40 times 300 minus 0.60 times 150, which is 120 minus 90, so 30 per trade.
How to read or test it
Calculate it per trade and also as a multiple of the amount risked, so strategies with different position sizes can be compared. Then bootstrap your intuition: split the trades into two halves and check that expectancy is positive in both. Inflate your cost assumptions and see whether it survives. An expectancy that is only just positive is a result that a small mistake in your cost model can turn negative. Revisit the figure as new trades arrive, because a young sample moves a lot.
How AKQX handles Expectancy
AKQX backtests report expectancy, and a result is auto-rejected if expectancy is zero or negative.
See Backtesting methodology for the feature page.
A common mistake
Assuming a positive expectancy in a backtest will persist. It is an estimate from one sample.
Educational only. This entry explains a term. It is not investment advice and does not recommend any trade, setting or strategy, and example numbers are illustrative, not results.
Related terms
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