Lesson 3 of 8 · 2 min
Expected value (EV)
Thinking in hundreds of trades, not one — win rate, reward-to-risk, costs and what a positive EV actually means.
A single trade tells you almost nothing. Expected value (EV) is what a trade — or a whole approach — makes on average if you repeat it many times.
Definition
Measure wins and losses in R — one R is the amount you risked. That makes results comparable across instruments and account sizes.
Worked examples
| Win rate | Avg win | Avg loss | EV per trade |
|---|---|---|---|
| 40% | 2R | 1R | 0.4×2 − 0.6×1 = +0.2R |
| 55% | 1R | 1R | 0.55 − 0.45 = +0.1R |
| 70% | 0.5R | 2R | 0.35 − 0.6 = −0.25R |
The last one wins 70% of the time and loses money. Win rate alone means nothing without the size of wins and losses.
Think in batches
Judge yourself on batches of 20–50 trades, not one. A +EV approach still has losing days and losing weeks. A −EV approach still has winning ones.
Costs come off every trade
Commissions, fees and slippage are paid on wins and losses. A small positive EV before costs can be negative after them — especially with tight stops, where costs are a big share of each R.
Where EV goes wrong
- Too few trades to know your real numbers.
- Changing the rules every few trades, so no batch is ever measured.
- Moving stops — turning 1R losses into 2R losses destroys EV quietly.
- Cutting winners early — shrinking your average win.
EV beyond single trades
The same thinking applies to decisions like buying a prop firm challenge: fee in, probability of passing, expected payout out. There's a full lesson on that in the Prop Firms track.
Quick recap
- EV = average result per trade after costs, in R.
- Win rate without reward-to-risk is meaningless.
- Judge in batches; protect your average loss.
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