Expectancy, edge and sample size: when results mean something
In this lesson you'll learn
- How to measure an edge properly
- Why small samples mislead, with numbers
- How to tell skill from luck in a track record
Edge = positive expectancy after costs
Lesson "Risk–reward and win rate" introduced expectancy: win rate × average win − loss rate × average loss. An edge is a strategy whose expectancy stays positive after costs over a large number of trades.
Small samples lie
Take a strategy with a true 50% win rate. In any run of 20 trades, getting 14 or more winners happens by pure chance about 6% of the time, and 6 or fewer about the same. So a 20-trade "70% win rate" proves very little.
| Trades | Typical spread of win rate around a true 50% |
|---|---|
| 20 | about ±22 percentage points |
| 100 | about ±10 |
| 400 | about ±5 |
(Approximate 95% ranges: ±2 × √(0.25 ÷ trades).)
Skill or luck?
- More trades, across different market conditions.
- Consistency across months, not one great month.
- Results that match the logic of the strategy (a trend strategy should do well in trends).
- Similar results out of sample: on data or periods not used to design it.
Try it
🎯 Expectancy and break-even calculator
Expectancy per trade
In money, per trade
Break-even win rate
Expectancy per day, not per trade
A strategy at +0.2R with 2 trades a week makes about 0.4R a week. One at +0.1R with 10 a week makes 1R, if execution and costs hold. Frequency matters, but only while the edge survives costs.
Common mistakes
- Calling 20 good trades an edge.
- Ignoring costs when computing expectancy.
- Judging a strategy on one market regime only.
Check yourself
1. With a true 50% win rate, 14+ winners in 20 trades happens by chance roughly…
2. An edge is…
3. Which best separates skill from luck?
Key takeaways
- Edge means positive expectancy after costs, over many trades.
- Small samples swing wildly: 20 trades prove little.
- Look for consistency across time and conditions.
Education, not advice. Goldman Academy teaches how markets and tools work. Nothing here is a recommendation to buy or sell, and no lesson promises profits. Trading leveraged products carries a high risk of losing money; only trade money you can afford to lose. · Written by Goldman Academy, reviewed by Faisal