Expected value (expectancy)

The expected value of a trade, or expectancy, is the average result per trade over many trades. In R: expected value = win rate × average win − loss rate × average loss. Our lab reports it in R or in basis points per trade, before and after costs.

Example

A method wins 40% of the time with an average win of +2 R and loses 60% of the time with an average loss of −1 R. The expected value is 0.40 × 2 − 0.60 × 1 = +0.20 R per trade before costs. If costs average 0.25 R per trade, it becomes 0.20 − 0.25 = −0.05 R: a losing method.

Why it matters

Expected value after costs decides whether a method is worth trading. It is estimated from past trades, so it carries uncertainty, and a small positive value before costs is often negative after them.