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4825 20 Nov 2020

Determining Expectancy in Your Trading

This tool helps you estimate your earnings and losses from trading by simulating trades based on winrate, fees, leverage etc.

Traders need to have a solid and realistic understanding of what they expect within the future, and specifically what returns they expect to provide in terms of profits. I ask traders all the time what quite returns or draw-downs they're expecting in their account and a surprising number say they need no idea or give me their goals instead of planned long-term returns. They need to be beneficial but don't realize how a strand of trades may impact overall portfolio price. This type of trading without planned expectations and rules may be a major barrier to success.

Random Trading

Many traders have a propensity for random trading. These types of traders seem to be fishing for opportunities. They'll make a trade or two from somebody else they saw on a forum or newsletter, or they'll just be entering trades without firm risk control procedures in place. They need an inclination to wait and see what happens. Usually, what happens maybe a gut-wrenching period of indecision, loss, and frustration.

Misunderstanding of trading costs

The second issue these traders affect may be a lack of understanding of system or strategy costs. I usually ask this as trader myopia or tunnel vision. These traders consider one trade at a time and aren't considering tomorrow, or next month's trades and don't understand the prices which will impact leads to the long term.

What is expectancy?

Expectancy is what it seems like. It helps you understand how winners, losers, gains, and losses associated with one another over the long term.

Calculate your potential trading profits: https://www.winrate.io/

Expectancy is a very important factor but there are two fundamental considerations that are important to notice when developing it:

Trading costs there's an easy method to assist better understand the results of trading costs on your system. Reduce the gains in your winners by the number of trading costs, and increase your losers similarly. As I discussed during a previous section, it's also good to assume an exact amount of slippage during entry. In other words, never assume that things will compute perfectly in your trades.

Summary

Expectancy may be a good way to match and analyze strategies and strategy modifications. Its a solid double-check on the viability of the strategy itself. If your expectancy ratio is negative you must not trade the strategy. If one of your trading factors is blank or only an estimate, you would like to solidify it before executing on your system.