What is your Expectancy ?

[bpr]

There are many fancy statistics when it comes to analyzing trading performance but the simplest of all is Expectancy.
If you are profitable trader then you should have a positive expectancy else a negative one.
Knowing your Expectancy is very useful. First it says whether you have a edge or not. Second it says how powerful is your edge and how much effort you need to put to make money.

How to calculate

1) Find your list of trades preferably live(than backtest) in last month or last 6 month or year... the more data you have the more reliable numbers you get

2) calculate number of profitable trades and number of losing trades
and then calculate the percentage winner and percentage looser

3) Sum of all winners amt / number of winners = avg winning trade
similarly sum of all losing trades /number of losers = avg loosing trade

Then calculate Risk to Reward ratio as avg loosing trade : avg winning trade
when calculating Risk to reward always make Risk as 1.

4) now to calculate Expectancy = ( percentage winner * Reward ratio - percentage looser * risk ratio ) / 100


My current system which I have been trading for a while has a expectancy of 0.35. Not happy looking to improve my numbers but it is not easy.

 

[marimuthu13]

I feel going with profit factor is simplest form to measure trading performance...anything above 2 is good, between 2 to 1.5 is just ok..

 

[bpr]

I feel going with profit factor is simplest form to measure trading performance...anything above 2 is good, between 2 to 1.5 is just ok..

what is your profit factor ?
EDIT:
I agree it is simpler and it is very similar but I think Expectancy forces people to calculate % win and % lose and avg Risk to Reward and that is very useful info.

 

[augubhai]

I used to focus a lot on stats like expectancy, but now I just keep working on bettering my trading results.

The term expectancy itself is a contradiction.

There are many fancy statistics when it comes to analyzing trading performance but the simplest of all is Expectancy.
If you are profitable trader then you should have a positive expectancy else a negative one.
Knowing your Expectancy is very useful. First it says whether you have a edge or not. Second it says how powerful is your edge and how much effort you need to put to make money.

How to calculate

1) Find your list of trades preferably live(than backtest) in last month or last 6 month or year... the more data you have the more reliable numbers you get

2) calculate number of profitable trades and number of losing trades
and then calculate the percentage winner and percentage looser

3) Sum of all winners amt / number of winners = avg winning trade
similarly sum of all losing trades /number of losers = avg loosing trade

Then calculate Risk to Reward ratio as avg loosing trade : avg winning trade
when calculating Risk to reward always make Risk as 1.

4) now to calculate Expectancy = ( percentage winner * Reward ratio - percentage looser * risk ratio ) / 100


My current system which I have been trading for a while has a expectancy of 0.35. Not happy looking to improve my numbers but it is not easy.

Agree, but a few small corrections.... Think about it. Don't take it otherwise.

First it says whether you have had a edge or not. Second it says how powerful is was your edge and how much effort you may need to put to make money.

 

[bpr]

I used to focus a lot on stats like expectancy, but now I just keep working on bettering my trading results.

The term expectancy itself is a contradiction.


Agree, but a few small corrections.... Think about it. Don't take it otherwise.

First it says whether you have had a edge or not. Second it says how powerful is was your edge and how much effort you may need to put to make money.

I got your point the thing is it is not just a simple calculation and one exact number that is never the case
Say you have 12 months trade data ...then calculate expectancy
then calculate for each of the individual months
and then calculate for each individual week (if you have sufficient data )

And you will see a range of expectancy ....
Obviously there might be few edge cases which may need to be removed
but mostly they will be very close to each other and then you can take a average and that number might represent your system.

I used to not believe in it but the same numbers keep coming again again force me to accept that my strategy has that number and it allows me to have more insights as to what my system is and what are its limitation.


if this is not the case and the numbers are all over the place then may be what the trader is doing is truly random and expectancy calculation does not make sense But I believe that is very rarely the case, even if you are a discretionary trader you might be trading some invisible pattern .... and when you calculate then you may find a number. That can give you lot of insights.

 

[VJAY]

There are many fancy statistics when it comes to analyzing trading performance but the simplest of all is Expectancy.
If you are profitable trader then you should have a positive expectancy else a negative one.
Knowing your Expectancy is very useful. First it says whether you have a edge or not. Second it says how powerful is your edge and how much effort you need to put to make money.

How to calculate

1) Find your list of trades preferably live(than backtest) in last month or last 6 month or year... the more data you have the more reliable numbers you get

2) calculate number of profitable trades and number of losing trades
and then calculate the percentage winner and percentage looser

3) Sum of all winners amt / number of winners = avg winning trade
similarly sum of all losing trades /number of losers = avg loosing trade

Then calculate Risk to Reward ratio as avg loosing trade : avg winning trade
when calculating Risk to reward always make Risk as 1.

4) now to calculate Expectancy = ( percentage winner * Reward ratio - percentage looser * risk ratio ) / 100


My current system which I have been trading for a while has a expectancy of 0.35. Not happy looking to improve my numbers but it is not easy.

Dear bpr
These maths always confuse me ...I got one excel file long back which I use to enter my trades ....can you please check my figures and tell is this calculations are right?looking your this post I doubt my calculation might wrong in excell file ...

 

[bpr]

Dear bpr
These maths always confuse me ...I got one excel file long back which I use to enter my trades ....can you please check my figures and tell is this calculations are right?looking your this post I doubt my calculation might wrong in excell file ...

Looks like 48 % winner 52% looser
Risk to Reward 1 : 4.3
so Expectancy =1.54

Is this consistent ? then I am really impressed.

I will post a simple excel file which will help others to calculate.

 

[VJAY]

Looks like 48 % winner 52% looser
Risk to Reward 1 : 4.3
so Expectancy =1.54

Is this consistent ? then I am really impressed.

I will post a simple excel file which will help others to calculate.

Thanks bpr.....so in my excell its showing expectency as 1.97 so its wrong please share your excel file i will use it for my calculations

now i checked code its like this ...expectency=(win % of trade *profit factor)-(loss % trade *1)
Profit factor=(win amount/win trades)/(loss amount/loss trades)...

Is this calculation different with your calculations?

 

[Snake.Head]

Dear bpr
These maths always confuse me ...I got one excel file long back which I use to enter my trades ....can you please check my figures and tell is this calculations are right?looking your this post I doubt my calculation might wrong in excell file ...

Possible for you post calculations excel formulas about that image

I got this excel sheet from web
Need to understand where it pull data to Analysis sheet from which row and column of data sheet
https://www.dropbox.com/s/8bmpog47igoe9y9/pl-sheet.xlsx?dl=0

 

[bpr]

You have to enter the first 3 columns and the rest will calculate.

https://www.dropbox.com/s/hfilfc9qrb05py6/Expectancy Calculation.xlsx?dl=0