1. What is Expected Value in Trading?

The Expected Value (EV) in trading represents the average amount a trader can expect to win or lose per trade over time. It's a crucial metric for evaluating the profitability of a trading strategy.

2. How Does the EV Calculator Work?

The calculator uses the Expected Value formula:

Where:

• \( WR \) — Win Rate (decimal between 0 and 1)
• \( AW \) — Average Win amount (in currency)
• \( AL \) — Average Loss amount (in currency)

Explanation: The equation calculates the expected profit or loss per trade by considering both the probability of winning and the relative sizes of wins and losses.

3. Importance of EV Calculation

Details: A positive EV indicates a potentially profitable strategy over time, while a negative EV suggests the strategy will lose money in the long run. EV helps traders objectively evaluate their strategies.

4. Using the Calculator

Tips: Enter your historical win rate as a decimal (e.g., 0.55 for 55%), your average winning trade amount, and your average losing trade amount. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good EV in trading?
A: Any positive EV is good as it suggests long-term profitability. The higher the EV, the better the strategy.

Q2: Can I have a positive EV with a win rate below 50%?
A: Yes, if your average win is significantly larger than your average loss (good risk/reward ratio).

Q3: How many trades should I analyze for accurate inputs?
A: At least 30-50 trades are recommended to get statistically significant win rate and average values.

Q4: Does EV guarantee future performance?
A: No, EV is based on historical data. Market conditions change, so EV should be regularly recalculated.

Q5: Should I only consider EV when evaluating strategies?
A: No, also consider other factors like maximum drawdown, consistency, and trading frequency.