Why Expectancy is Essential in Forex Trading

There is One Critical Metric that determines whether or not the system/strategy you’re trading is profitable or unprofitable:

Expectancy.

Expectancy tells you what you can expect to make in return for each trade you place in the market.

If your expectancy is negative, it doesn’t matter how many trades you take or even how many wins you record, your overall performance will be negative.

Over 90% of traders are trading with a negative expectancy. They are deceived into thinking that they are going to turn it around or make a run, but the truth is that they are trading a method with a negative expectancy and even if they do go on a lucky run, the end result (long term) will be unprofitable.

The good news is that expectancy can be manipulated and even reversed, you just have to change certain things about the way you trade and, as a result, your expectancy can begin to recover.

That was the good news… Here is the best news:

I am willing to look at your personal strategy/system/history and help you make the necessary changes to reverse your expectancy.

It doesn’t matter if you don’t have a consistent strategy or have not been following a disciplined system for a long period of time; it’s extremely likely that you have certain trends and tendencies in your trading that need to be adjusted.

You’ll be amazed that most traders are not nearly as far off from being profitable like they think; it’s more about the small changes than about the big ones.

In order for this to work, you’ll have to help me help you.

Just follow 2 Simple Steps and we’ll be able to help you increase your personal expectancy.

1. Hook your trading account up to Myfxbook

Myfxbook is an analysis tool that looks at your account and gives performance metrics so that we don’t have to look at every trade you have ever made to learn about what you’re doing, Myfxbook does that for us.

It’s a pretty simple process and if you are not already hooked up to Myfxbook, this is a MUST-DO for all Forex traders.

You can connect your FX account at http://www.myfxbook.com/

If you’re not sure how to set up the account, just check out their help page: http://www.myfxbook.com/help

2. Submit  A Comment

In order to analyze your trade history, we’ll need to get some important information from your personal Myfxbook account.

All of these stats are EXTREMELY easy to find once you’re connected, which is why we so highly recommend it.

All you have to do is scroll down a bit after you are connected and you’ll see a section that looks like this:

july_11_pic_1

Here are the stats we need you to list in the comment section (or you can simply post an image exactly like the one I have posted above).

1. Winning Percentage
2. Average Win in Pips AND Dollars
3. Average Loss in Pips AND Dollars
4. Best Trade in Pips AND Dollars
5. Worst Trade in Pips AND Dollars
6. And, of course, Expectancy

Above, I posted an account that has a positive expectancy; here’s an example of a more typical account with a negative expectancy:

july_11_pic_2

Please understand that expectancy is truly what determines profitability for a given trader or a given system.

Some people will tell you that it’s all about PIPS, right?

Wrong.

Many systems actually produce a positive pip count and have a negative expectancy, which means it does not matter how many pips they make, they will still lose money.

Check this out:

july_11_pic_3

Over about 500 trades, the system is actually slightly positive in net pips, yet the system expects to lose over 100 dollars per trade on average!

At Winner’s Edge, we care about profit, not pips. While pips are good and it’s certainly great to hit a 300 pip trade, what really matters is whether or not your account is growing long term.

And guess what determines that.

You guessed it! Expectancy!

That’s why we want to help you have a positive expectancy.

We know that if you are trading with a positive expectancy, your account will grow and compound and you’ll build wealth using the Forex Market.

So, just follow the 2 simple steps listed aboveand we’ll help you get on the track to successfully growing your account.

 

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • Skyvision

    Hello Chris

    please find attached my “MYFXBOOK” results

    i am in the process of using one disciplined system, am so looking forward to your comments…
    i use a broker in the US, and therefore i have two sub-accounts, one for only taking BUYs and the other for taking only SELLs…

    thanks

  • Michael Glavin

    Hi Chris, my trading stats are not good. For the past 2 months I have had 7 consecutive losers and no winners! My drawdown of minus 3% is not too bad though. My focus has been on entries and taking smaller losses. For the rest of the year I will focus on getting on the right side of the market.

  • Takao Hoshi

    I am sorry that my table has somehow turned into a series of numbers.
    I will try to paste the table again if and when I know how to do it properly.

  • Takao Hoshi

    Here is my statistics table; Hope it fits in this space.

    rades:205Profitability:Pips:-291.4Average Win:16.23 pips / $21.28Average Loss:-16.67 pips / -$24.07Lots:28.97Commissions:-$173.82Longs Won:(41/90) 45%Shorts Won:(54/115) 46%Best Trade($):(Jun 20) 93.30Worst Trade($):(Jun 20) -143.06Best Trade (Pips):(May 21) 65.8Worst Trade (Pips):(Jun 20) -76.5Avg. Trade Length:11h 9mProfit Factor:0.76Standard Deviation:$30.79Sharpe Ratio:-0.01Z-Score (Probability):-0.77 (55.87%)Expectancy:-1.4 Pips / -$3.05AHPR:-0.04%GHPR:-0.04%

  • Phoebe Ejimbe

    Thanks, Chris and team for your commitment to help us improve our lots in trading.
    My figures are in DOLLARS throughout as I am unable to obtain same in PIPS from MT4 platform. I have an expired demo account connected with MyFxbook. My live account is not yet connected because I do not trade with it often enough.
    My answers are based on a total of 59 trades taken over a 6-month period.

    1. Winning %tage: 32.20%

    2. Average win in Dollars: $4.55

    3. Average Loss in Dollars: $10.53

    4. Best trade in Dollars: $23.87

    5. Worst trade in Dollars: $27.02

    6. Expectancy: -$5.67 (Hope this is correct as I’m not sure how to calculate EXPECTANCY).

  • Nasir O Muhammad

    Hi there.Heres my account.I think i have a good strategy,i just dont have enough discipline to use it right.

    Trades:
    37

    Profitability:

    Pips:
    24.7

    Average Win:
    29.03 pips / $34.91

    Average Loss:
    -18.67 pips / -$40.40

    Lots:
    7.5

    Commissions:
    -$112.51

    Longs Won:

    (5/15) 33%

    Shorts Won:

    (10/22) 45%

    Best Trade($):
    (Jul 08) 122.83

    Worst Trade($):
    (Jul 02) -138.57

    Best Trade (Pips):
    (Jul 08) 132.0

    Worst Trade (Pips):
    (Jul 15) -55.2

    Avg. Trade Length:

    16h 39m

    Profit Factor:

    0.59

    Standard Deviation:
    $49.38

    Sharpe Ratio:

    -0.13

    Z-Score (Probability):

    -1.16 (75.48%)

    Expectancy:
    0.7 Pips / -$9.87

    AHPR:
    -0.69%

    GHPR:
    -0.55

  • Fabrice Goeyvaerts

    Hi Chris,

    I’m copying my Success Program Homework from Week 15 (April 17th) as my account is frozen till April 11th (you know why it’s frozen since then ;-) ).

    I calculate my expectancy not with pips but with R (for Risk).
    To me pips don’t mean anything as the result of one trade is function of SL size (won’t go into details here but if you disagree feel free to comment :-) ).

    As of today, here are my stats:
    Number of trades taken = 46 (not a big sample there but as discussed during webinar it’s over a period of 15.5 months which adds a bit of weight)

    Win ratio = 32.61%
    (minimum 1:1 to be accounted as a win)

    Assuming I’m risking 1% -> R = 1%:
    Average winning R = 2.58
    Average loosing R = -1.01

    Profit expectancy (R) = (32.61% * 2.58R) + (67.39% * -1.01R) = 16.07R

    In reality my average risk = 0.13% -> this nice figure is “only” 2.09R.

    I am curious to see what my profit expectancy will be when my average risk will be
    of 1%.

    In $, I have:
    Average win = $31.97
    Average loss= -$10.64

    -> Profit expectancy ($) = (32.61%*$31.97) + (67.39%*-$10.64) = $3.25

    I’m very well aware that those numbers are quite high and abnormal. As I take more trades, I expect those numbers to go down.

    Cheers,

    Fabrice

  • Greg

    The
    data set is from a mechanical forward paper test (pips only; no$$) during the
    first 3 months of 2014. There were 1135 samples…1) Winning % = 36.8%; 2) Avg.
    win in pips = 35.3; 3) Avg. loss in pips = -18.6; 4) Best trade in pips = 293;
    5) Worst trade in pips = -72.9; 6) Expectancy = 1.22 pips per trade.

  • NathanTucci

    Hi Kiran, that is a great question and actually a very, very common occurrence among traders. We’ll get into that in the follow-up article to explain how and why this occurs… Do you have an account you are able to post data for?

  • Kiran

    Hi Chris, I noticed that some of the stats in the article and the comments have a positive pip expectancy, but a negative dollar expectancy. I don’t understand how this is possible?

  • Dave Hanna

    Also, here are the stats for the account I used to trade just my scalping strategy:

  • Dave Hanna

    Here’s the stats for OANDA demo account that I have been using to trade in the trading room and my scalping strategy, up to the beginning of this month (July).

    Thank you for your help, Chris.

  • Oggalan

    Thanks Chris in advance to help us, improve our trading. My main problem is that I resist to accept losses, that’s why the losses are sometimes huges.

    1. Winning Percentage: 91% of trades are winners
    2. Average Win in Pips AND Dollars: 8.17 pips / $1.32
    3. Average Loss in Pips AND Dollars: -63.54 pips / -$13.14
    4. Best Trade in Pips AND Dollars: 26.2 pips / $4.55
    5. Worst Trade in Pips AND Dollars: -143.2 pips / -$30.15
    6. And, of course, Expectancy: 1.4 Pips / -$0.05

    Greetings,

    oggalan