The Expectancy Formula (with a Worked Example)
Expectancy (R) = (Win rate x Risk:Reward) - Loss rate
Per trade % = Risk per trade x Expectancy (R)
Worked example: a 55% win rate at 2R gives (0.55 x 2) - 0.45 = 0.65R. Risking 2% per trade, that is 1.30% per trade, which compounds to about 13.8% over 10 trades.
Why a Low Win Rate Can Still Win
Win rate alone tells you nothing about whether a strategy makes money. A 40% win rate at 3R is more profitable than a 70% win rate at 0.5R. What matters is expectancy: the blend of how often you win and how much you win versus lose.
The breakeven win rate for any risk-to-reward is 1 / (1 + R:R). At 2R you only need to be right 33.3% of the time to break even; at 3R, just 25%. Higher reward-to-risk lets you win less often and still come out ahead.
From Backtest to Forward Test
Expectancy measured on a backtest is an estimate, not a promise. Slippage, spread, missed entries, and your own discipline all erode it live. Treat the number here as an upper bound and forward test before you trust it with size.
Expectancy is also an average. Even a positive-expectancy system has losing streaks, so pair this with the streak probability and risk of ruin tools before deciding how much to risk per trade.
