Basically Futures

STAGE 3 · LESSON 3 OF 5

Expectancy, win rate and costs

Win rate alone says very little about whether a trading method has positive expected value.

THE IDEA~8–12 MINUTES

Understand it

Expectancy per trade is probability of winning times average win, minus probability of losing times average loss, adjusted for costs. A strategy that wins 40% of the time can be positive with sufficiently large average wins. A strategy that wins 80% of the time can lose money if rare losses are much larger. Sample estimates are uncertain and should include fees, spread and slippage.

WORKED EXAMPLE

A strategy wins 40% of trades at $200 and loses 60% at $100. Gross expectancy = 0.4×200 − 0.6×100 = $20. If average costs are $8, estimated net expectancy falls to $12 per trade.

Watch for this misconception

Assuming the measured win rate will remain stable or that a positive backtest proves an edge.

PRACTICE EXERCISE

Use the expectancy tool to make a high-win-rate strategy unprofitable by changing losses and costs.

Risk and expectancy tools ↗
KNOWLEDGE CHECK

Which metric must accompany win rate to estimate expectancy?

Select the best answer

Check the sources

Hypothetical educational examples. Verify current product specifications and rules before making decisions.