How do you know a strategy is worth your time before trading it?
Time is the scarcest trading resource. A new strategy costs weeks of testing before it earns anything — so the screening question matters: does this have a reason to work, or just a good backtest?
What's your screen?
- the questions you ask before testing
- the red flags that end consideration
- the strategy that passed the screen and earned it
The expectancy guide supplies the screening maths.
Background: Risk-reward ratio, win rate and expectancy: the maths behind a trading edge
A high win rate can still lose money. See how win rate and risk-reward combine into expectancy, with break-even win rates and worked examples.
What is a good risk-reward ratio in forex?
There isn't one right ratio. What matters is expectancy, the win rate and ratio together. A 1:2 ratio breaks even at about 33% winners before costs, while a 1:1 ratio needs 50%.
How do you calculate trading expectancy?
Multiply the win rate by the average win and subtract the loss rate multiplied by the average loss. Measuring wins and losses in multiples of the amount risked (R) makes the result easy to compare.
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