Expectancy is the single number closest to "is this working?". It is the average amount a trade makes when you add up the winners, the losers and the breakeven trades and divide by the count. Positive expectancy means each new trade is worth taking on average; negative means each one costs you.
Formula
expectancy = (win rate × average win) − (loss rate × average loss)
Over a closed set of trades this is the same as net P&L divided by the number of trades. Expressed in R-multiples instead of money:
expectancy (R) = average of the R-multiples of all trades with a recorded risk
Example
Twenty trades: 11 winners averaging $180, 9 losers averaging $150.
If every trade risked $150, that is 31.50 / 150 = +0.21R per trade.
Why R is the better unit
Dollar expectancy grows when you size up; R expectancy does not. If your expectancy in R holds steady while your account doubles, the edge is intact. If it drifts from +0.3R to +0.1R over three months, something in the execution changed, and the dollar figure can hide that while the account is growing.
Rough guide for discretionary traders: +0.1R is thin, +0.2R to +0.4R is solid, anything above +0.5R over more than 50 trades is exceptional.
In SetupBook
The dashboard card shows expectancy in money with "per trade" under it, and Analytics adds expectancy in R from every trade that has a stop or a risk amount. Breakeven trades count here, unlike in win rate, because they are real trades that took time and commission. Expectancy in R is one of the six components of the trader score.
Common mistakes
- Reading expectancy from ten trades. One outlier dominates; see sample size.
- Mixing accounts in different currencies into one dollar figure. Use R for that.