anyone know how to find expected value in trading?

@george_kramer - 3 months ago - Risk Management

I was listening to a quant trader today and he said something about Expected Value, so I got curious. Anyone know how expected value is calculated and how it is applied while trading?

@elvis_sacramento - 3 months ago

Expected Value = (winning rate x average amount won per trade) – (losing rate x average amount lost per trade)

Example

If your win rate is 60% and, on every trade, you win an average of $5; and your loss rate is 40% and on average you lose $4 per trade

EV = (60% x $5) - (40% x $4) = 1.4

A good Expectancy Value should always be positive and not negative. In the example I gave above, 1.4 is positive to that EV is good.

@emma_durban - 3 months ago

EV helps you find out the probability that every trade you take will end in a profit. I always calculate EV for every trading strategy separately, so I know which strategy is more profitable.

The best EV figure should be above 0.25.

Calculate EV using formula (win rate x amount won on each trade) minus (loss rate x amount lost on each trade)

You need to be honest with yourself when calculating EV, if possible, use an excel spreadsheet to populate all your wins in one column and all your losses in another then take the sum of each column.