Since profitability cannot be determined from Win % alone, the Expectancy formula provides a means of quantifying your edge over a series of trades. A trading strategy that makes money over the trade “sample” will have an expectancy greater than zero. A losing strategy will have a result less than zero.

This figure is important, as one can assume (given a good size data sample) that they can expect to make this amount going forward as long as their performance remains consistent with prior results. When you find a positive expectancy situation, you’ll want to exploit it by looking for as many opportunities going forward as possible. For example, if you have a strategy that you often use on a specific time-frame (say, 60-minute chart), then why not look for that same setup/strategy on a lower or higher time-frame as well.

“At the heart of all trading is the simplest of all concepts – that the bottom-line results must show a positive mathematical expectation in order for the trading method to be profitable.” ~ Chuck Branscomb


Posted in: Performance Rankings (as used in the "Tracking" Sheet)