Expectancy is what you make on average per trade; profit factor is how many dollars you win for each dollar you lose. Expectancy answers "how much is each trade worth?" and profit factor answers "how lopsided are my wins against my losses?" Both are above their breakeven (0 and 1) for a profitable strategy, so they never disagree on direction. They disagree on what they leave out.
What expectancy means
Expectancy is the average result of one trade over a large enough sample. In dollars:
Expectancy = (win rate × average win) − (loss rate × average loss)
Divide by your average loss (1R) and you get expectancy in R-multiples, sometimes called the expectancy ratio: how many units of risk each trade earns on average. Expectancy in R is the form that lets you compare strategies trading different sizes. Plug your numbers into the expectancy calculator to see both.
What profit factor means
Profit factor = gross profit ÷ gross loss
A profit factor of 2.0 means winners paid twice what losers cost. Below 1.0 the strategy loses money. It has no dollar unit and does not depend on position size.
The same 10 trades, both ways
Take ten trades: five winners of $300, $450, $100, $600 and $200, and five losers of $150, $200, $100, $250 and $150.
| Figure | Working | Result |
|---|---|---|
| Win rate | 5 ÷ 10 | 50% |
| Average win | 1,650 ÷ 5 | $330 |
| Average loss | 850 ÷ 5 | $170 |
| Expectancy | (0.5 × 330) − (0.5 × 170) | $80 per trade |
| Expectancy in R | 80 ÷ 170 | 0.47R |
| Profit factor | 1,650 ÷ 850 | 1.94 |
Each trade is worth about $80, or 0.47R, and winners pay close to twice what losers cost. The same ten trades also give a gain to pain ratio of 0.94, which is just profit factor minus 1. Those three measure trades. For how steady the account curve was day to day, the Sortino ratio works on daily returns.
Where they disagree
Position size
Trader A takes 20 trades: 10 winners averaging $300 and 10 losers averaging $150. Trader B takes the same trades at four times the size.
| Trader A | Trader B (4× size) | |
|---|---|---|
| Profit factor | 2.0 | 2.0 |
| Expectancy ($) | $75 | $300 |
| Expectancy (R) | 0.5R | 0.5R |
Profit factor cannot see size, and expectancy in dollars cannot separate a better edge from a bigger bet. Expectancy in R does both: identical edge, identical 0.5R.
Sample size
One $5,000 winner and one $1,000 loser give a profit factor of 5.0 from two trades. Profit factor looks impressive on small samples because a single outlier moves it, so check it against the number of trades behind it.
Trade frequency
Expectancy is per trade, so two strategies with the same $80 expectancy earn very different amounts if one takes 5 trades a month and the other takes 50. Neither number shows frequency on its own.
Which to use
- Expectancy in R to compare strategies and decide if an edge exists.
- Profit factor as a quick quality check on a set of trades, read with the trade count beside it.
- Both before changing size. Look at the expectancy and profit factor definitions, then size with the position size calculator.
ExpectancyIQ calculates both for any date range or strategy tag once you import your trades, so you can see whether a setup's profit factor and expectancy tell the same story. To score expectancy against its own scatter, see what SQN is.