I’m just taking a look at expectancy right now. There isn’t much online that I could find about it without having being bombarded with advertisements and signal services…
So far, I’ve found two formulas for expectancy:
E = [1 + (W/L)] x P-1
W= Average winning trade
L= Average losing trade
P= Percentage win ratio
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
I’m assuming both will give out the exact same results, too lazy to do algebra right now. =P
Assuming I am currently trading with a 50% win rate, and achieving a 2.5:1 reward to risk ratio each trade, how would I go about calculating this? I see calculators online that will give me a percent or a dollar value.
E = [1+ (75 pips/30 pips)] x 50% - 1
E = 0.75
Now what does that 0.75 mean exactly?
Expectancy = (0.5 * 75 pips) - (0.5 * 30 pips)
Expectancy = 22.5
So I’m getting 22.5 using this formula. So what would this mean?
I’m just having hard time determining which formula to use and what the answer would mean. At the same time, what is a recommended expectancy rate?