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Expectancy

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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.