What is Expected Value (EV)?
The average outcome of a strategy over many repetitions — positive EV means profitable long-term, negative EV means losing long-term.
Expected value (EV) is the mathematical foundation of profitable trading. It tells you the average result per trade if you repeat the same strategy hundreds of times.
Formula:
EV = (Win Rate × Average Win) − (Loss Rate × Average Loss)
Example 1 — Positive EV strategy:
EV = (0.40 × $300) − (0.60 × $100) = $120 − $60 = **+$60 per trade**
Over 100 trades: expected profit = $6,000.
Example 2 — Negative EV strategy:
EV = (0.60 × $100) − (0.40 × $200) = $60 − $80 = **−$20 per trade**
Despite winning 60% of the time, this strategy loses money long-term.
Why high win rate ≠ positive EV:
Many traders obsess over win rate while ignoring average win/loss sizes. A strategy winning 70% but with a 1:0.5 R:R has negative EV. A strategy winning 30% with a 1:4 R:R has strong positive EV.
Practical application:
To know if your strategy has positive EV, you need a sample of at least 50–100 trades. Calculate average win, average loss, and win rate from your trade history. If EV > fees, the strategy is viable.