The expectancy value
of a trading system
is a statistical
measure that becomes
more accurate as the
number of trades included
in the calculation increases.

This value should be calculated from a statistical batch of
about 100 live trades to be extremely accurate although a
picture begins to emerge after 30.

Expectancy is a measure of what you can expect to profit for
every $1 risked over the long run. This “over the long run” part
is important because it means that you cannot have any meaningful
evaluation of a trading system with just a small batch of trades.

Instead, enough trades must be included in the calculation so that
irregular effects are averaged out.

Essentially, statistical measures are meaningless with only a
small sample of trades and that a large number of samples produces
the accuracy.

You need at least 30 trades before you even consider judging the
trading system and 100 or more for really good accuracy.

Expectancy is not a predictive value, but a measure of past
performance only. If this is so, what good is it?

There is no Forex tool that is ‘predictive’, but having an expectation
based on past performance can provide the probability of how
well a trading system will perform in the future.

 The following formula provides a good guide for achieving success on
the Forex:

Positive Expectancy + Money Management = Long Term Success

A positive expectancy is a minimum requirement for long term success.

The other required component is good money management as discussed in
future hubs.

The PIP Value is an important component in determining risk and money
management strategy as well as understanding profit and loss in FOREX
trading. Essentially, you need to know how much a one PIP move will
effect your account balance.

Direct rates are currency pairs where the USD is the quote currency,
or second currency in the pair (GBP/USD, EUR/USD, AUD/USD, NZD/USD).

PIP_Value = Lot_Size X Tick_Size

Example: Standard lot of GBP/USD
Lot_Size =100,000
Tick_Size = 0.0001

1 PIP = 100,000 X .0001 = $10.00 USD

Indirect rates are currency pairs where USD is the base currency, or
first currency in the pair (USD/JPY, USD/CHF, USD/CAD)

PIP_Value = Lot_Size X Tick_Size / Current_Rate

Example: Standard lot of USD/JPY currently trading at 98.73

1 PIP = 100,000 X .01 / 98.73 = $10.13 USD

Good Luck with your Forex Trading.

If you have any queries, please leave a comment and
I will do my best to answer it.

Regards,

Terry Allen 

Please be advised that Foreign Currency trading involves
substantial risk of monetary loss.

All information contained on this website is provided as general
commentary and must not be constituted as investment advice.

I will not accept liability for any loss or damage, including
without limitation to, any loss of profit, which may arise directly
or indirectly from use of or reliance on this information.