Module 4 — Risk & position sizing
Expectancy and why win rate is not enough
6 minute read
In plain English
Expectancy = (win rate × average win) − (loss rate × average loss). A 40% win rate can be profitable; a 70% win rate can be ruinous.
Why it matters
It moves your attention from being right to being paid when you are right.
Example
40% wins averaging $60 against 60% losses averaging $20 gives a positive expectancy of $12 per trade.
Try this
Calculate expectancy across at least thirty paper trades before changing anything.
Common mistake
Judging a strategy on a handful of trades.
What this does not mean
Positive past expectancy does not guarantee future results.
Educational content only. Not financial advice.