# How do I calculate expectancy from a past series of trades in my trading account? [closed]

Expectancy is defined as "How much money gained for every $1 risked". What is the expectancy for this particular series of trades? • Risked €1, won €2 • Risked €2, won €1 • Risked €3, won €6 • Risked €3, won €6 • This question, about a particular (simple) application of a common definition, is both not "expert" and too localized. – Tal Fishman Oct 4 '11 at 1:36 • Odd - I'm not sure why this was closed. The answer supplied the theory behind expectancy quite nicely. Problem solved. – Contango Oct 4 '11 at 19:54 • It fits the definition of "too localized": "This question is unlikely to ever help any future visitors." You are merely asking how to apply a simple principle. It is like posting a question on SO asking "how do I declare a variable in C?" If your question is about the theory behind expectancy, then change the question and perhaps it could be re-opened. – Tal Fishman Oct 4 '11 at 20:07 ## 2 Answers Van Tharp addresses expectancy in his book, Trade Your Way to Financial Freedom. Here is his definition of expectancy.$\frac{winPct * winAmt - losePct * loseAmt}{trades}$I would recast your trades as follows: • Won €1 • Lost €1 • Won €3 • Won €3 Your winning percentage is 75%. Your losing percentage is 25%. Your winning amount is €7. Your losing amount is €1. So your expectancy would be$\frac{.75* €7 - .25 * €1}{4}\$

Your expectancy, by Tharp's reckoning, would be €1,25. Tharp does not directly use the amount at risk. Rather, his definition takes into account that the trader or quant may choose a larger bet size when the odds are in his favor.

• Another way to recast the trades is in Van Tharp's concept of R multiples, e.g. 2R, 0.5R, 2R and 2R, the average of which is 1.625, i.e. on average you can expect to make 1.625 times your risk per trade. – babelproofreader Oct 4 '11 at 21:56
• Good point, @babelproofreader. The R multiples are also taking into account the OP's desire to take the amount at risk into account. – rajah9 Oct 5 '11 at 15:05

Lets see if I have this right:

Expectancy = average win / average loss.

Thus:

• Risked €1, won €2 means total wins are now €1 for 1 trade.
• Risked €2, won €2 means total losses are now €1 in 1 trade.
• Risked €3, won €6 means total wins now rise to €4 over 2 trades.
• Risked €3, won €6 means total wins now rise to €7 over 3 trades.

Thus, average win = €7 / 2 = €3.50, average loss €1 / 1 = €1, so expectancy is 3.50 for this series of trades?