World traders, they have 1 formula to help determine this precision, which is the Expectancy formula.
Formula Expectancy
- Expectancy = (% Win Orders x Average Winning Amount) - (% Loss Orders x Average Losses)
This expectancy must be greater than 0 and as large as possible to show the effectiveness of the transaction system. If the Expectancy is negative then avoid that system. Note that the number of orders must be large (range 50-100 something) to create more objectivity.
Note:
- % Win Orders = Number of Win Orders / Total Trade Trades
- % Loss Orders = Number of Lost Orders / Total Trade Trades
- Average winnings = Total winnings / Total winnings
- Average Losses = Total Losses / Total Losses
For example:
You have a new trading system and have traded 60 orders. In it, brothers have 23 winning orders, divided by an average of 50 USD each. There are 37 losing orders, divided each losing order 35 USD. You want to figure out if this system is okay. We're going to calculate Expectancy for it
Expectancy = (23/60 x 50) - (37/60 x35) = 19.16 - 21.58 = - 2.42 USD
This means that for every trade that goes through, the account goes back 2.42 USD. It's not funny, right. Being rusted gradually like a fish
So after these 60 trades, this trading system makes us lose. We have to find a way to change it or switch to something else.
See Expectancy right on the Brothers Metatrader 4
Nowadays, it's modern, so you don't have to take out figures but click adds plus-minus to subtract. Metatrader 4 software helps you to calculate the Expectancy as soon as you save the Report as Detailed Report
Instructions for you to save Detailed Report: Go to Account History, right-click on the transaction history, choose Save as Detailed Report. After saving, the report will open itself on the browser you are using, or you can open it yourself by double-clicking on it.
When the report opens, you scroll down to the bottom, look at the Expected Payoff. That is the Expectancy of those your.
In the example of this report, the Expected Payoff is 6.76, which means that for every 1 trade, the average eats 6.76 USD. If you have a positive Expected Payoff, it seems your Trading System is working well.
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