What's your definition of an edge, exactly?
Ask ten traders what an edge is and you'll get ten answers: a win rate, a repeatable pattern, an information advantage, a risk model. The definition matters because it decides what you search for.
Define yours:
- what an edge means to you
- how you know when you have one
- the false edges you've chased
The expectancy guide gives the statistical definition.
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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