How to Calculate Expectancy With Stocks

By Business & Finance Last updated Wednesday, April/24/2024

1). Use the formula to solve for expectancy: (probability of wining x average win) - (probability of losing x average loss). You'll need to review a sufficiently large number of trades to come up with an accurate picture of your trading strategy's expectancy.
2). Plug in your values into the formula. For instance, let's say that after reviewing 20 of your trades, you determine that you have a win rate of 40 percent, the average losing trade of $12 and an average winning trade of $16. Your formula would then look like this: Expectancy = (40 percent x $16) - (50 percent x $12). Convert your percentages to decimal points to get the following formula: Expectancy = (0.4 x $16) - (0.4 x $12).
3). Solve for expectancy. In the scenario above, you'd end up with $6.4 - $4.8, which would equal $1.60. This is your expectancy per trade.
4). Divide this amount by your average loss ($12 in this example) to find out how much you yield per dollar risked. In this case, you'd get 13 percent.

VeryPages News News - Breaking News & Top Stories - Latest World, US & Local News,Get the latest news, exclusives, sport, celebrities, showbiz, politics, business and lifestyle from The VeryPages,Stay