Expectancy and profit factor: the two numbers that show whether your trading works
Win rate is the number traders quote most, and it is the least useful on its own. A strategy that wins 80% of the time can still lose money, and one that wins 35% of the time can be solid. Two numbers answer the real question — does this make money over many trades? — expectancy and profit factor.
Expectancy
Expectancy is the average result per trade over a large number of trades.
Expectancy = (Win rate × Average win) − (Loss rate × Average loss)
Example: you win 40% of trades, the average win is $300 and the average loss is $150. 0.40 × 300 − 0.60 × 150 = 120 − 90 = $30. On average, each trade has added $30. A positive number means the approach has worked on these trades; a negative one means it has not, however good individual days felt.
Expressed in R instead of money — average win and loss divided by your usual risk — expectancy can be compared across account sizes and periods.
Profit factor
Profit factor = Gross profit ÷ Gross loss
With the same numbers over 100 trades: 40 × $300 = $12,000 won, 60 × $150 = $9,000 lost, a profit factor of 1.33. Above 1 the winners outweigh the losers; below 1 they do not. It is quick to read, but it ignores how many trades it took to get there.
Why win rate misleads
A high win rate often comes from taking profits early and letting losses run. Ten wins of $50 and one loss of $600 is a 91% win rate and a net loss of $100. Expectancy shows this immediately; win rate hides it.
How many trades are enough?
These numbers move a lot over a small sample. Twenty trades can look excellent or terrible by chance. Look at them over at least 30–50 trades, and compare them per setup rather than for your whole account mixed together.
In Simple Trading Journal
The statistics page shows expectancy, profit factor, payoff ratio, average win and loss, and win rate, calculated from your closed trades — including trades that arrive from MetaTrader or are imported from a report. The setup performance table shows the win rate and net result of each setup, so you can see which one carries your results.