Risk
Expectancy
Average result per trade in units of risk: win rate times reward, minus loss rate, minus costs.
Arithmetic
True by construction. No market data is needed to know it.
Arithmetic. The uncertainty in the estimate is the main lesson.
What it is
Winning 40% of trades at 2R gives 0.4 x 2 - 0.6 = +0.2R per trade before costs.
What it suggests
The number is an estimate from the trades so far. Dozens of trades give wide error bars, and a point estimate shown without the sample size claims more than it knows.
How to check it
Show the number of trades beside every average.
Common mistakes
- Trusting a strong average built on twenty trades.
Related lessons
Written in our own words. Education only, not financial advice.