The only number that says whether you have an edge
Win rate does not. Profit last month does not. Expectancy does.
`` Expectancy (R) = (Win rate × Average win in R) − (Loss rate × Average loss in R) ``
The output is what one trade is worth to you on average, expressed in R. Positive means you have an edge; negative means you are paying to trade. Everything else is commentary.
Working it
A trader's last 100 trades: 38 wins averaging +2.4R, 62 losses averaging −1.0R.
`` (0.38 × 2.4) − (0.62 × 1.0) = 0.912 − 0.62 = +0.29R per trade ``
At $50 per R, that is $14.50 per trade, on average. Take 20 trades a month and the system is worth roughly $290 monthly — before the trader has done anything clever.
Now the more common shape. 68 wins averaging +0.6R, 32 losses averaging −1.3R:
`` (0.68 × 0.6) − (0.32 × 1.3) = 0.408 − 0.416 = −0.008R per trade ``
A 68% win rate that loses money. The trader feels successful — two out of three trades win — and the account slowly declines. This is far more common than the reverse, and it is invisible without the calculation.