TradersWiki

Strategies & testing

Expectancy and win rate

Win rate counts successful trades. Expectancy also accounts for the size of wins, losses and costs.

The arithmetic

For a sample with only winning and losing trades, average gross outcome equals (win proportion × average win) − (loss proportion × average loss). Use positive magnitudes for the average win and loss. Subtract average costs if they are not already included. Breakeven trades must also be accounted for in the full sample.

Worked example

In a hypothetical 100-trade sample, 40 trades win $200 each and 60 lose $100 each. Gross profit is $8,000 minus $6,000, or $2,000. The gross average is $20 per trade despite a 40% win rate. If each trade costs $5, the sample net profit is $1,500 and the net average is $15.

What cannot be inferred

This sample average is an observation under the stated assumptions. It is not a guarantee of future expected profit. A few unusual wins, shifting market conditions or unrealistic fills can change the result. Keep the distribution and sequence of outcomes, not just the mean.

Sources & method

The calculations use stated hypothetical inputs and reproducible arithmetic. They are not achieved returns.