Your Win Rate is Lying to You — Know Your Real Edge
TL;DR
A high win rate doesn't mean profitability — a trader winning 8 out of 10 trades can still lose money overall if the two losses are ten times the size of the wins. Expectancy — (win rate × average win) minus (loss rate × average loss) — is the single number that actually tells you whether a strategy makes money.
A trader who wins 8 out of 10 trades sounds like they have a clear edge. But if the two losses are ten times the size of the average win, that trader is losing money overall — and win rate alone would never reveal it.
Expectancy fixes this by combining win rate with average win size and average loss size into a single number: the amount you can expect to make or lose, on average, per trade. It's the only one of the three numbers that actually answers "does this strategy make money."
The formula is straightforward: (win rate × average win) minus (loss rate × average loss). A strategy with a 40% win rate can still have strongly positive expectancy if winners are large relative to losers — this is exactly how many trend-following approaches work.
If you've never calculated your own expectancy, it's worth doing before changing anything else about how you trade — it's the single number most likely to tell you whether your current approach has any edge at all.
Why isn't win rate enough to judge a trading strategy?
A strategy can win most of its trades and still lose money overall if the losing trades are large enough relative to the winners.
What is trading expectancy?
The average amount you can expect to make or lose per trade: (win rate × average win) minus (loss rate × average loss).
Can a low win-rate strategy still be profitable?
Yes — a 40% win rate can have strongly positive expectancy if winners are large relative to losers, which is how many trend-following strategies work.
How do I know if my trading strategy has a real edge?
Calculate your own expectancy across all your trades — it's the single number most likely to answer that question, more reliably than win rate alone.
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