Expectancy and luck
The average R per trade, and how wildly luck spreads it. · 6 min
Expectancy is what a method earns per trade on average, in R. It combines how often you win with how much you win and lose:
Winning 40% of the time at 2R gives 0.4 × 2 − 0.6 × 1 = +0.2R per trade: about 20R per 100 trades. Positive expectancy is necessary, but it does not mean every 100 trades make money. Run the simulator below and look at the band: the same edge produces very different years.
The Kelly fraction, p − (1 − p) ÷ b, is the bet size that maximises long-run growth when the edge is known exactly. It never is, and full Kelly swings are brutal, so traders use a fraction of it.
Expectancy and luck
The same edge, traded 100 times on 1,000 alternate timelines. The band holds 90% of outcomes; thin lines are single paths.
Expectancy +0.350R per trade · profit factor 1.64
- Median result
- 40.3%
- 5% worst / best
- 7.2% / 78.1%
- Chance of ending down
- 1.2%
- Median max drawdown
- 7.7%
- Chance of a 50% drawdown
- 0.0%
- Kelly fraction
- 17.5% (half-Kelly 8.8%)