System Expectancy


Established member
542 57
If traders are wanting to compare systems, then expectancy is only half the story. You also have to take into consideration the opportunity factor.

For example, system A might have an expectancy of $1.46 per trade and system B might have an expectancy of $0.57 per trade. On the face of it, system A looks the better system, until you learn that system A averages 100 trades a year whilst system B averages 1000 trades a year, meaning that system B is actually nearly 4 times as profitable as system A over a 12 month period.




Junior member
47 0
Sure, but then just use a % value over a period of time and you get an easily comparable expectancy measure.


97 13
I posted something similar of ET not so long ago and I think the idea of knowing the expectancy of any trading system (whether it's some complex formula or a simple visual backtest - doesn't matter it's what works for you) is vital to trading psychology.

For example, I have a few strategies and for each one I have the trade entry expectancy fully documented in my trading plan so that I know the probability of loss after pulling the trigger. I know entries are like only 5% of the trade, and the other 95% is made up of trade management and psychology, but if you know the chance of success against loss before you pull the trigger, then it helps deal with losses psychologically and it removes some of the emotion out of trading (well it does for me anyway). My evaluation of entry expectancy also takes into account drawdowns which I find helps out in trade management (i.e. know what drawdown is likely or to be expected over a set period of time) which in turn lends itself to knowing when a trade has gone wrong and what level a suitable stop loss should be.

I probably haven't explained myself very well but just my two cents worth.

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