What Is Expected Value (Win/Loss)?
Expected value (EV) is a key performance metric used to assess the profitability of a trader’s approach or forex trading strategy. It is calculated as the sum of the products of each possible profit or loss and its corresponding probability.
How Is Expected Value Calculated in Forex?
For example, if you win 40% of your trades with a $3 profit per winner, and lose 60% of your trades with a $1 loss per loser, your expected value per trade is calculated as follows:
Expected Value = (0.4 × 3) + (0.6 × (−1)) = 1.2 + (−0.6) = 0.6.
This means your average expected gain per trade is $0.60 — a monetary expression of trading efficiency. A negative expected value indicates an expected net loss over time.
How to Use Expected Value
Expected value is a powerful tool for evaluating the long-term profitability of a trading system.
By collecting trade statistics (win rate, average win, average loss), you can compute EV — which may be positive or negative.
If EV is positive, your strategy is statistically profitable: your account balance will grow over time. The higher the EV, the faster your equity grows.
If EV is negative, continued trading under the same conditions will deplete your account. In that case, revise your money management rules and optimize your strategy.
FAQ
What does a positive expected value mean in trading?
A positive EV means your strategy yields more profit on average than loss per trade — indicating statistical edge and long-term viability.
Can expected value be zero?
Yes — an EV of zero implies breakeven performance over many trades, assuming no transaction costs or slippage.
How many trades are needed for a reliable EV estimate?
At least 30–50 closed trades are recommended to reduce statistical noise and improve confidence in the EV calculation.
