L4.1 — Expectancy: The Only Number That Predicts Long-Term Performance

Expectancy is the average amount you expect to win or lose per unit risked across a large sample of trades. The formula: (Win Rate x Average Win Size) - (Loss Rate x Average Loss Size). A positive expectancy means the strategy produces profit over time. A negative expectancy means it loses over time, regardless of individual winning trades.

Example: 50% win rate, average win 2R, average loss 1R. Expectancy = (0.5 x 2) - (0.5 x 1) = 0.5R per trade. Over 100 trades risking 1% each, this produces approximately 50% cumulative return assuming no compounding. This is the number you are building toward — not the individual trade result.

You cannot know your expectancy from 10 trades. You need a minimum of 50, and 100 is more reliable. Until you have that sample, you do not know whether you have a positive expectancy strategy. This is why capital preservation during the learning phase is essential — you need to survive long enough to accumulate the sample that tells you whether your edge is real.