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What your edge looks like over 100 trades
The same win rate and payoff can end far apart. Play your numbers out a thousand times and see the range luck alone gives you.
- Expectancy
- +0.20 R
- Typical result
- 21%
- Ended in a loss
- 9%
Each trade is worth 0.20 R on average. Over 100 trades, nine runs in ten ended between −5% and 53%.
| Typical worst drawdown | 10% |
|---|---|
| Worst drawdown, 1 run in 20 | 18% |
| Chance of a 20% drawdown | 3% |
| Chance of a 30% drawdown | 0% |
| Typical longest losing streak | 7 trades |
| Longest losing streak, 1 run in 20 | 12 trades |
Forty of the thousand runs
Every line uses the same win rate, payoff and risk. The spread between them comes from luck, meaning the order the wins and losses happen to arrive in. These are hypothetical runs, not a forecast.
Reading the result
Expectancy is what an average trade earns in units of risk (R), worked out as win rate × average win − loss rate × average loss. Above zero, the rules have an edge on paper. It says nothing about the drawdowns on the way.
The drawdown and losing streak rows are the ride. A strategy you abandon in its worst month never gets to its average. If the 1-in-20 drawdown would make you stop, lower the risk per trade until it wouldn't.
These runs assume every trade risks the same share of the account and that wins and losses arrive independently. Real markets cluster their losses, so treat these numbers as the gentle case. The drawdown tables show how much gain a deep loss needs to recover.
Common questions
What is expectancy in trading?
Expectancy is what an average trade earns, worked out as win rate × average win − loss rate × average loss. A strategy that wins 35% of the time and makes 3R on a win and loses 1R on a loss earns 0.35 × 3 − 0.65 × 1 = +0.40R a trade.
Can a strategy with a low win rate be profitable?
Yes, if the wins are large enough. With wins twice the size of losses, any win rate above 33.3% has a positive expectancy. Breakout and trend strategies often win a third of their trades or fewer and still make money by letting a few winners run.
How many losing trades in a row should I expect?
Longer than many traders expect. Over 100 trades at a 40% win rate, the chance of at least one run of 6 losses in a row is about 87%, and of 8 in a row about 49%. At a 35% win rate, 8 in a row happens about two times in three.