In an earlier post, expectancy was associated with profit factor. It is more closely related to payoff ratio. In Van Tharp's book, 2nd edition, "Trade your way...", page 204 et seq, he calculates Expectancy = average profit/ # trades divided by average loss. Payoff ratio is average profit/average loss, so Expectancy = payoff ratio/# trades. --which can give very low numbers, and makes the concept rather dubious if you are using it as an absolute value for comparing systems with different numbers of trades. It might be better to use trades per annum. To be fair Van Tharp only gives that way of calculating expectancy as a default if the risk of a trade isn't able to be calculated taking into account a pre-determined proportion of equity. For that, you need to read the whole chapter. Personally i find CAR/MDD, RRR more relevant, along with the raw Payoff ratio. The K-ratio isn't worth the space it takes up: RRR is simpler.
regards Gerry
