Expectancy refers to the expected return per trade. Only trading systems with positive expectancy should be traded. Otherwise, you’re just donating money to your broker (who isn’t a charity).
Here’s the formula to calculate expectancy:
E(R) = (PP x AP) – (PN x AN)
E(R): Expected Return;
PP: Probability of (+) trade;
AP: Average (+) trade;
PN: Probability of (-) trade;
AN: Average (-) trade.
Vincent Nyagaka is a Professional Trader, Analyst &. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Checkout Vincent’s Professional Trading Course here.