This article has been translated from English to Gen Z Slang.
When you're out here reviewing your trading vibes, do you obsess over your win ratio or jump straight to your expectancy? 🤔
The win ratio is basically keeping score of how many W’s you’ve got versus the number of trades you’ve juggled.
How many times did you call the shots right? 🔮
Feels like a top priority, but let’s be real, when you zoom out, it’s not the full tea. 📉
“Dr. Pipslow, how can you say that? No cap, how do you get the bag if you ain’t right in at least most of the trades you make?!”
Here’s the vibe: getting the coin and always being spot-on ain’t always linked. 💸 You can still glow up even if you mess up sometimes.
This is where the whole "reward-to-risk ratio" comes into the chat. 🔄
Imagine by year-end, 80% of your 50 trades were L’s. After some number crunching, you find your average loss was around $100.
First glance, and it feels like you’re taking L's left and right, dropping $4k in losses from 40 trades. 😩
But plot twist, the other 10 trades? Those were hitting that sweet reward-to-risk ratio. 💪
Your average win was $500 a trade. You’re copping $5k from winners and losing only $4k from the rest. 🎉
By the end of the year, you’re still up even though you were right only 20% of the time. 🔥
But hold up, let’s flip it. What if instead of being wrong 80% of the time, you had it right 80% of the time?
You were bagging those quick wins by closing trades just a few pips in your favor. 🎯But the losing trades? You let them drag because losing hits different. 😬
The 40 winning trades had an average gain of $50, while the L’s averaged $500. By year-end, you stacked $2k but lost $5k. 🤦♂️
This shows you gotta look past just being correct. Consider the expectancy of all your trades. 👀
Expectancy is central to any trading hustle. But too many peeps sleep on this and only eye the profits of each trade.
If "expectancy" sounds like a foreign language, time to level up on some forex education! 🎓
Expectancy is basically the amount you stand to gain (or lose) for each dollar of risk.
Let’s hit an example real quick.
Say Ryan’s trading game is strong with $10k in his account. Over time, he wins about 40% of the time, earning $250 a trade. 💵
But when he takes an L (60% of the time), he loses an average of $100 a trade. 🚫
So what’s the tea on Ryan’s expectancy?
Expectancy = ($250 X .40) – ($100 x .60) Expectancy = $100 – $60 Expectancy = $40
Translation: Ryan’s expecting to snag $40 per trade on the low. Even while catching more L's, he’s cooking up positive vibes. ✨
So after 100 trades, Ryan could cash in $4k ($40 x 100). 📈
Flip side? If his win chance was higher but his gains weren’t it, his account would dry out eventually. ☔️
Here’s another scenario.
Say Ryan’s pulling $100 per trade and winning 60% of the time, but losing $200 with a 40% chance. 🤔
This means his expectancy is ($100 x .60) – ($200 x .40) = ($60 – $80) = -$20.
So every trade? Ryan’s expecting to drop $20. 💸
Might not be fast, but the bank account is going downhill if he rides this wave. ⏳
Bottom line, don’t get bamboozled thinking traders winning 90% of their trades are always rolling in dough. 💭
Trading in the forex market, being right most of the time isn’t the flex you’d think it is. 🤑
To stay profitable, all you need is a positive expectancy. 💪🚀
