Expectancy and System Trading
How expectancy, win rate, average win, average loss and sample size shape a Turtle-style trading system.
System trading should be judged by expectancy, not by whether the last trade won.
The basic idea
Expectancy describes the average result of a repeated decision process. A simplified expression is:
Expectancy = win rate * average win - loss rate * average loss
Trend following often accepts a lower win rate in exchange for a larger average win. That trade-off only becomes visible over enough trades.
Why sample size matters
A system can have a positive long-term profile and still lose several trades in a row. A small sample can be dominated by randomness, market regime or execution error. Reviewing a system after five trades rarely proves much.
What to measure
| Metric | Why it matters |
|---|---|
| Maximum drawdown | Shows how much pain the account may need to survive. |
| Longest losing streak | Helps set expectations before live trading. |
| Average win / average loss | Explains whether winners are large enough. |
| Trade count | Shows whether conclusions have enough observations. |
| Slippage and fees | Converts theoretical rules into realistic execution. |
Expectancy is not a promise. It is a way to keep evaluation grounded in repeated decisions instead of emotional memory.