Expectancy and profit factor: how to compute them, and when they mislead

Win rate tells you how often you are right. Expectancy and profit factor tell you whether being right pays. Both take a minute to compute from a list of trades, and both can look far better or worse than the truth when the list is short.

• Expectancy is your average net P&L per trade: total net P&L divided by the number of trades.
• Profit factor is what your winners made divided by what your losers lost.
• Use net P&L, after commission and fees, or a strategy that loses money can look profitable.
• On 20 or 30 trades one big winner can carry both numbers. Check them without your best trade.

Expectancy

Expectancy is what one trade is worth to you on average. There are two ways to write it, and they give the same answer:

• Expectancy = total net P&L ÷ number of trades
• Expectancy = (win rate × average win) − (loss rate × average loss)

The second form shows why win rate alone says little. A 40% win rate with winners twice the size of losers has a positive expectancy; an 80% win rate with losers five times the size of winners does not. Count a trade that closed at exactly zero as a trade: it belongs in the total, and it lowers both the win rate and the loss rate.

Profit factor

Profit factor = sum of all winning trades ÷ sum of all losing trades, with the losses taken as a positive number. Above 1.0 the winners outweighed the losers; below 1.0 they didn't. A profit factor of 1.5 means every dollar lost came back as $1.50. If you have no losing trades yet, profit factor has no value: it is a division by zero, not a sign of a perfect strategy.

Expectancy is in dollars and grows with your size. Profit factor is a ratio, so it lets you compare an MES strategy with an ES one, or this month with last month at a different size.

A worked example

Twenty trades, every figure net of commission and fees:

• 9 winners: $600, $180, $150, $140, $130, $120, $110, $100, $90 (total $1,620, average $180)
• 11 losers: −$120, −$110, −$100, −$100, −$90, −$90, −$90, −$80, −$80, −$70, −$60 (total −$990, average −$90)

Net P&L is $1,620 − $990 = $630. Expectancy is $630 ÷ 20 = $31.50 a trade. The long form agrees: 0.45 × $180 − 0.55 × $90 = $81 − $49.50 = $31.50. Profit factor is $1,620 ÷ $990 = 1.64.

That looks like an edge. Now take out the single best trade, the $600 winner. Nineteen trades remain, net P&L is $30, expectancy is $1.58 a trade and profit factor is 1.03. One trade out of twenty made almost the whole result.

Why both numbers mislead on few trades

Expectancy is an average, and an average of a few noisy numbers is itself noisy. A rough check: take the standard deviation of your trade P&L and divide it by the square root of the number of trades. That is the standard error, roughly how far the average could be from the real one by luck.

In the example the trades have a standard deviation of about $173, so the standard error over 20 trades is about $173 ÷ √20 ≈ $39, more than the $31.50 expectancy itself. Two standard errors either side gives a range from about −$46 to +$109 a trade. These twenty trades are consistent with a losing strategy. To shrink the standard error to about $10 at the same spread of results, you would need around 300 trades.

Other ways the numbers fool you:

• Outliers. One trade that caught a news spike can carry a month. Look at the numbers with and without your best trade, and at the largest winner as a share of total profit.
• Costs left out. Gross P&L hides commissions. On micro contracts a round turn of, say, $1.50 on a trade that made two ticks of MES ($2.50) leaves $1.00.
• Mixed setups. One profitable setup and one losing one average out to a mediocre number that describes neither. Split by setup before deciding anything.
• Changing size. If you doubled your size halfway through, the dollar expectancy is mostly about the second half. Profit factor is less affected, but it still weights the bigger trades more.
• Market conditions. A month of trending days is not a sample of all days. More trades from the same week do not fix that.

Where Blindspot shows them

• Dashboard. Expectancy (per trade) and profit factor sit next to net P&L and win rate, for all time, the year to date, a year or a month, and for one account or all of them.
• After costs. Both are computed from each trade's net P&L, after commission and fees. A trade counts as a winner when its net P&L is above zero. If your broker feed has no commissions, set your per-contract rate in Settings → Commissions so the numbers match your statement.
• Per instrument and per tag. Advanced Analytics shows profit factor, win rate and average P&L by instrument and by tag (strategy, mistake, emotion, grade), so you can see which setup carries the result. Each row shows its trade count: read a profit factor over eight trades as eight trades.
• Without your best trade. Blindspot does not compute this for you. Find your largest winners in the Trades list and subtract them by hand, as in the example above.

You can also connect ChatGPT or Claude to your journal and ask, for example, "what is my expectancy on MNQ this month without my best trade?". The assistant reads your trades and does the arithmetic. Blindspot does not compute a standard error or a confidence range.

Frequently asked questions

More guides

How to spot tilt in your own trades, finding your best time of day to trade, MAE and MFE, and every guide.