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)
where:
E(R): Expected Return;
PP: Probability of (+) trade;
AP: Average (+) trade;
PN: Probability of (-) trade;
AN: Average (-) trade.