Risk and psychology
Expectancy
Definition
The average R multiple per trade: W × average win − (1 − W) × average loss. Positive means the winners outweighed the losers in that sample.
Example
Suppose a method wins 3 trades out of 10 with an average win of +3R, and the other 7 lose 1R each. Expectancy = 0.3 × 3 − 0.7 × 1 = +0.2R per trade: with $100 risked on each, that is $20 per trade on average in that sample. If slippage pushed the average loss to 1.3R, the result would fall to −0.01R, a small loss.
Hypothetical numbers, for illustration only.
Also defined in
UpTickFlow is our product. These guides are education, not financial advice. Trading involves a substantial risk of loss.