Expectancy seems like a big word to a new investors or traders. However, it is not, put it in very simple term, to let the winners run and cut the losers short.
blogs been dead.. haha.. prove i can't write
For many technical traders, finding the right technical setups (cross moving averages, technical shape) seem to be the most important component in a decision to put in a trade. But what is least emphasize has been another technical term: expectancy ratio.
It seems like a big word, but basically in layman term: let your winners run and cut your losses short.
Taking a very simple example of 10 trades, with a high 7 wins, 3losses and average dollars per trade as below, a trader lose -$200
| Trades | Win% | Lose% | Win$/trade | Loss$/trade | Overall |
|---|---|---|---|---|---|
| 10 | 7 | 3 | $100 | $300 | -$200 |
Reversing all the variables now, we can see from the table below, the trader with a small win-rate is still able to achieve $200 gain.
| Trades | Win% | Lose% | Win$/trade | Loss$/trade | Overall |
|---|---|---|---|---|---|
| 10 | 3 | 7 | $300 | $100 | +$200 |
Multiple above statistics a few hundreds to thousands trades, you will be able to see how important loss$/trade affect the performance of a portfolio.
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