Free lessons › Risk Management & Position Sizing › The Math of Risk
Expectancy & win rate trade-off
How a 40% win rate can crush a 70% one.
10 min · Beginner
What you'll learn
- Calculate expectancy in R from win rate, average win and average loss
- Calculate the breakeven win rate for any reward-to-risk ratio
- Explain why a lower win rate with larger winners can outperform a high win rate
Key takeaways
- Expectancy = (win rate x average win) - (loss rate x average loss), measured in R.
- Breakeven win rate = 1 / (1 + reward-to-risk): 50% at 1R, 33.3% at 2R, 25% at 3R.
- A 40% win rate with 2.5R winners and 1R losers beats a 70% win rate with 0.6R winners and 1.5R losers.
- Losing streaks are normal even with a positive edge, so risk must stay small enough to survive them.
- Judge expectancy over 50 to 100 trades of the same setup, not a handful.
Glossary
- Expectancy — The average R gained or lost per trade over many trades: win rate x average win minus loss rate x average loss.
- Win rate — The percentage of trades that close at a profit.
- Breakeven win rate — The minimum win rate needed to avoid losing money at a given reward-to-risk: 1 / (1 + reward-to-risk).
Unlock this lesson
The full lesson, quiz and practice task are included with the Academy plan. Elite includes a 7-day free trial. See plans