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Expectancy

A method is a set of results, not the last result. Expectancy is the average of those results.

Lesson 1 of 5 • 12 min

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Worked example

A printed set of results being reviewed
+8+8-5-5Average+1.5A sample, not a promise about next month
Example. Four practice results that followed the same rule: +8, +8, −5, −5. The average is +1.5. The last result is not the method. The average of the sample is.

Study material only. It is not a signal to buy or sell. AcademyTrade is education. It is not a broker, not investment advice, and not a promise that you will make money. Trading can lose the money you deposit.

Expectancy is ordinary arithmetic. Take a sample of practice trades that followed the same written rule. Multiply the average win by how often you won. Multiply the average loss by how often you lost. Subtract the second from the first.

If the number is negative, the rule lost money in that sample even if the last trade was a win. If the number is positive, the rule was ahead in that sample. It is still a sample. Twenty trades is a hint. Two hundred is a stronger hint. Neither is a promise about next month.

Include the spread and any fee. A backtest that forgets them is a story about a market you cannot trade. The article on backtests in this academy is the longer warning. This lesson is the formula.

Do not change the rule because of one trade. Change it, if you change it, after the sample says the average is the problem.

  • Use only trades that followed the written rule.
  • Include the spread.
  • Write the average down. Do not keep it in your head.
Expectancy · AcademyTrade