Positive Expectancy: Finding Your Trading Edge
Dec 17, 2025
Positive Expectancy: Finding your edge - taking X amount of trades to get profit and refining.
Definition: the state of thinking or hoping that something, especially something pleasant, will happen or be the case.
What does it really mean though? When traders first get into the market, their expectation is far more unrealistic than they really sound like.
Unrealistic expectation:
- Wishful thinking, head in the clouds when first learning about trading and how much money you can make.
- Starting to count your eggs before the chicken lays them. 2% every day. Thinking the market will do what you want it to do. Profitable from day one.
- Never losing.
Realistic expectation:
- Not profitable for the first year or so.
- Losing money.
- Stress.
- Frustration.
- Ego Deflation.
- Thoughts of quitting.
Coming back to Positive Expectancy, Where does this play a role in trading? What does positive expectancy affect? Your capital? Your psychological game? Performance?
What does this really mean in trading -
“If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.” -Market wizards
_________
Practical Application:
When creating your system and identifying an edge, a part of it is to figure out your positive expectancy. How many trades will you lose before striking a profit? It’s all a game of probability.
Identify in a few steps:
-
Get your stats, ie 38% win rate; how many losses will you have on average, before you see a winner?
-
Can your approach be refined? Review journals, and use it to see what can improve. Bring up charts and go over them. (lowerstop loss? Increase profit range?)
-
You can come to a conclusion on how your strategy should perform during the recent conditions. Builds confidence. Your strategy performance will change with the market conditions.
Expect to win example:
10 trades: loss 7, won 3.
How do you improve?
Remember that as a trader, we are always going to be on this journey of self-improvement; We must be.
