Expectancy

Expectancy is the single most useful summary metric for any trading strategy because it captures both directions of the win-rate / win-size trade-off in one number. A strategy that wins 70 percent of the time but loses more on average than it wins per trade can still be unprofitable; a strategy that wins 30 percent of the time but wins three times more on average than it loses can be very profitable.

The formula is simple. If a strategy wins 40 percent of the time, with an average win of $300 and an average loss of $150, expectancy is (0.40 × $300) - (0.60 × $150) = $120 - $90 = $30 per trade. Multiply by the trade count over a window to estimate total P&L. Negative expectancy with any trade volume produces account erosion no matter how interesting the strategy looks.

Expectancy is also the right unit for comparing strategies. A scalping system with $5 expectancy and 200 trades a month outproduces a swing system with $80 expectancy and 5 trades a month. It compares apples to apples in a way that win rate, R-multiple, or profit factor each individually cannot.