Forex Trader Expectancy Calculator

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Win Rate:

Reward per Dollar Risked:

Expectancy:

 

How to use the expectancy calculator

Whether you're an automated trader or manual scalper, you should have some idea of your risk-reward and win rate. For many manual traders, these figures may simply be average figures over the course of a given amount of time (say, a month or even a year of actual experience.)

Or maybe you're simply designing a new strategy and you're using backtested data to estimate the profitability of your strategy.

Either way, expectancy is a vital tool used by professional traders to determine that there's a mathmatical expectation of profit from any particular Forex trading strategy or approach.

The key is to essentially be the casino, not the gambler. The difference between a casino (which wins over the long term) and losing gamblers is simple: the casino operates with positive expectancy on their side. Every casino game is designed with a built-in edge that would produce a positive result on an expectancy calculator and they may not win every game, but after hundreds or even thousands of trials, they end up on top. That's why the house always wins.

And the key to successful trading is to operate like a casino: Trade with a positive edge.

This calculator gives you the amount of profit to expect from your strategy, on average, for each dollar risked per trade.

1) Win rate: Enter the percentage of trades that your strategy wins
(For example, if you have a 40% win rate, then enter the number "40", not 0.40.)

2) Reward per Dollar Risked: Enter the amount of capital your strategy, on average, profits for every dollar risked per trade.
(For example: If you strictly following a 2-to-1 reward-to-risk ratio, then enter 2.)

Contrary to popular belief, it's actually not necessary to make reward-to-risk greater than 1-to-1 in order to be profitable... but if you do drop your reward ratio, you'll find that you need a higher winrate in order to be profitable. Experiment with this calculator a bit, you'll see how the two variables interact. It's just a matter of which variable (winrate or reward) your strategy can realistically achieve and maintain at a higher level in order to stay profitable.

WARNING: Remember that a positive expectancy based on past data is not a guarantee of future profitability, it simply gives you a mathematical assessment of a strategy. Always use common sense to assess whether there is a structural and rational logic behind your strategy. Never take others' claims at face value. And even with a long-term positive expectancy, it's entirely possible to experience short-term drawdowns as a natural part of the laws of large numbers playing out. Make sure any near-term trading losses won't affect your quality of living.

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