Risk/Reward Ratio & Expectancy
Profitability = win rate × payoff, not win rate alone. Expectancy is the business model of trading.
The Math of SurvivalAdvanced 6 min read· Lesson 2 of 5 in Risk Management
The formula
Expectancy = (win% × avg win) − (loss% × avg loss). A 35% win rate with 3R winners earns +0.40R/trade; a 70% win rate with 0.4R winners and 1R losers LOSES 0.02R/trade. High win rates feel good and can still bleed.
Using it
Before entry: where's the logical stop, where's the realistic target, is the ratio ≥2:1? If the chart doesn't offer 2R of room to the next obstacle, the trade is skippable regardless of how convincing the story is. After 30+ trades, your journal computes your ACTUAL expectancy — the only opinion that counts.
On this platform
The Backtest panel reports win rate, profit factor (gross win/gross loss — expectancy's cousin), and per-trade P/L, making the arithmetic of any rule explicit before real money meets it.