Expectancy = (Win Probability X Average Win) – (Loss Probability X Average Loss)
Expectancy is mostly used by traders and it can be helpful for investors to understand this formula as well. Let me explain expectancy through a coin toss game: Imagine tossing a coin. If the coin shows heads, you earn $2. If it is tails, you lose $1. Question: After 100 tosses, what are your odds of being profitable at the end? Take your time to think about it. . . . The answer is 100%. That means after 100 tosses, you will end up profitable all the ......If you have invested for long enough, people will tell you that investing is a game of probability. The objective is to achieve more winners than losers in your portfolio. So how can investors like you increase your win odds in investing? Before we move on, we have to understand the expectancy formula:
