Every trader wonders one thing: “Will my strategy make money in the long run?”
The answer lies in a single number called expectancy. It tells you whether your approach has a real edge or if it will drain your capital over time.
And the best part? It can be explained using a simple concept called R.
What Is R? (The Simplest Way to Think About Risk)
Before understanding expectancy, let’s define R.
R is simply the amount you are willing to lose on a trade.
If you risk ₹1,000 on a trade, then 1R = ₹1,000.
If you lose that risk amount, the result is –1R.
If you make ₹3,000 on that trade, the result is +3R.
Using R helps you compare trades consistently, no matter the stock or price.
What Exactly Is Expectancy?
Expectancy answers this powerful question:
“On average, how much R do I make or lose per trade?”
A positive expectancy means your strategy generates profits over multiple trades.
A negative expectancy means you’re guaranteed to lose over time, even if you win often.
Expectancy = (Win Rate × Avg Win in R) – (Loss Rate × Avg Loss in R)
It combines win rate and reward-to-risk into a single, meaningful measure.
Expectancy Explained with a Simple Example
Suppose your trading plan gives these results:
Win Rate: 40%
Average Win: +3R
Average Loss: –1R
Now calculate expectancy:
Expectancy = (0.40 × 3R) – (0.60 × 1R)
Expectancy = 1.2R – 0.6R
Expectancy = +0.6R
This means you make 0.6R per trade on average.
If your R = ₹1,000, then your average profit per trade is:
0.6R = ₹600 per trade
Even though you win only 40% of the time, the strategy is profitable because your winners are much larger than your losers.
Why Expectancy Is So Important
Many traders chase high win rates, but win rate alone doesn’t determine success. Expectancy reveals the true financial impact of your trading behaviour.
If expectancy is positive, you’re on the right path. If it’s negative, the system needs refinement—before it costs you more.