Use risk-reward ratio for the planned trade.
If entry-to-stop risk is 100 USD and the planned target is 200 USD away, the planned reward-to-risk ratio is 2:1, or +2R versus -1R. This helps compare the target distance with the invalidation distance before entry. It does not say how often the target will be reached.
A tighter stop can make the displayed ratio look larger without improving the trade idea. If ordinary price movement reaches that stop more often, the win rate and realised results may deteriorate. Stop placement should come from invalidation; position size then keeps the accepted loss compatible with the plan.
Use expectancy for a recorded set of outcomes.
In a simple win-or-loss model, gross expectancy equals win probability multiplied by average win, minus loss probability multiplied by average loss. With a 35% win rate, a +2R average winner and a -1R average loser, the arithmetic is 0.35 × 2 - 0.65 × 1 = +0.05R per trade before costs.
If average fees and slippage are 0.10R per trade, net expectancy becomes -0.05R. The planned 2:1 ratio did not protect the sample from costs. These are hypothetical inputs, not a performance estimate or forecast for a blockfunded account.
A planned +2R target shows distance relative to risk. It does not assign a win rate or guarantee that realised winners will average +2R.
Keep planned targets separate from realised averages.
A strategy can target +2R while its average winner is smaller because of partial exits, early closes or execution differences. Likewise, moving stops or allowing losses beyond the original invalidation can make the average loss larger than 1R. Use realised outcomes from the journal when reviewing expectancy.
Apply one cost convention. Either record gross outcomes and subtract a separate average cost, or record net outcomes and enter zero additional cost. Mixing net trade results with another cost deduction understates the sample.
Review uncertainty and the path of losses.
A positive historical average does not guarantee that the same distribution will continue. Small samples, selected trades and repeated changes to the strategy can make the number unstable. Separate strategy versions and compare the original development sample with later trades that were not used to tune it.
Expectancy also does not describe loss sequencing. A strategy with a positive average can still experience a streak that reaches a daily or maximum drawdown boundary before later winners occur. Review the average together with losing-streak scenarios, combined exposure and the account's current loss room.
- Plan the trade.Define invalidation, accepted loss and target without inventing a win probability.
- Record the outcome.Keep actual R result, costs and process deviations for every trade.
- Review a sample.Calculate net expectancy, stress the inputs and compare loss sequences with drawdown room.
Compare the trade plan with the recorded sample
FAQ
Does a 2:1 ratio mean I only need to win one trade in three?
The cost-free break-even rate is 33.33% only if winners actually average +2R and losers average -1R. Costs raise the required rate.
Can a strategy with a high win rate lose money?
Yes. Small average wins, large average losses or high costs can produce negative expectancy.
Should scratch trades be counted as wins?
No. A journal with break-even trades needs a separate scratch category and should include their costs.
Does positive expectancy guarantee passing a challenge?
No. Sampling uncertainty, loss sequencing, execution and account rules can still produce failure.