Expected Return Formula Calculator Forex

Expected Return Formula:

\[ E[R_{forex}] = (Win_{prob} \times Avg_{win}) - (Loss_{prob} \times Avg_{loss}) \]

Win Probability (decimal):

Average Win (%):

Loss Probability (decimal):

Average Loss (%):

Expected Return (E[R]):

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1. What is the Expected Return Formula in Forex?

The Expected Return Formula calculates the average return you can expect from a trading strategy based on your win rate, average win size, and average loss size. It's a fundamental metric for evaluating trading system performance in Forex markets.

2. How Does the Calculator Work?

The calculator uses the Expected Return formula:

\[ E[R_{forex}] = (Win_{prob} \times Avg_{win}) - (Loss_{prob} \times Avg_{loss}) \]

Where:

\( Win_{prob} \) — Probability of winning a trade (0 to 1)
\( Avg_{win} \) — Average winning trade percentage
\( Loss_{prob} \) — Probability of losing a trade (0 to 1)
\( Avg_{loss} \) — Average losing trade percentage

Explanation: The formula calculates the weighted average of potential outcomes, showing what return you can expect per trade over many trades.

3. Importance of Expected Return Calculation

Details: Expected return helps traders evaluate strategies objectively, compare different approaches, and manage risk effectively. A positive expected return is essential for long-term profitability.

4. Using the Calculator

Tips: Enter probabilities as decimals between 0 and 1. Win and loss percentages should be based on your historical trading data. Ensure win_prob + loss_prob = 1 for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good expected return in Forex?
A: This depends on your risk tolerance, but generally positive expected returns are needed. Professional traders often aim for 0.5%-2% expected return per trade.

Q2: How many trades should I analyze to get accurate inputs?
A: At least 30-50 trades are recommended to get statistically significant probabilities and averages.

Q3: Should I include breakeven trades?
A: Yes, count them either as wins or losses based on your system rules, or create a separate category if they're significant.

Q4: Can expected return predict actual performance?
A: It's a statistical expectation - actual results will vary but should converge to the expected value over many trades.

Q5: How does this relate to risk management?
A: Expected return should be considered alongside risk metrics like maximum drawdown and standard deviation of returns.