Expected Value in Trading and Poker: The One Number That Decides Profit
"Is this a good trade?" has one honest answer: it is good if it makes money on average. That average has a name — expected value, or EV. Poker players use it on every call; traders who use it stop worrying about single results and start building an edge.
Key takeaways
- EV = win rate × average win − loss rate × average loss.
- A 40% win rate can be very profitable; a 70% win rate can lose money. Risk-to-reward decides.
- Fees reduce every win and increase every loss — include them in the EV.
- Positive EV only shows over many trades. Fixed, small risk per trade lets you get there.
What expected value means
Expected value is the average result of a decision if you could repeat it many times. It is not what will happen next time — it is what happens on average. A decision with positive EV is worth taking even though it often loses; one with negative EV should be skipped even if it sometimes wins.
Expected value of a crypto trade
Take a trade with a Stop Loss that risks $20 and a Take Profit that would make $40 — a 2:1 risk-to-reward ratio. Suppose setups like this win 40% of the time.
You lose more trades than you win, yet every trade is worth +$4 on average. Over 100 trades that is about +$400 — with plenty of losing streaks along the way.
Thinking in R
Traders often measure results in R, the amount risked. Here 1R = $20, a win is +2R and a loss is −1R. The EV becomes 0.40 × 2 − 0.60 × 1 = +0.2R per trade. Thinking in R makes trades of different sizes comparable.
Win rate alone means nothing
The win rate you need depends on your risk-to-reward ratio. The break-even win rate is 1 ÷ (1 + reward/risk):
| Risk-to-reward | Break-even win rate | EV at 45% win rate |
|---|---|---|
| 1:1 | 50% | −0.10R |
| 1.5:1 | 40% | +0.13R |
| 2:1 | 33.3% | +0.35R |
| 3:1 | 25% | +0.80R |
A trader who wins 70% of the time but takes 1R profits against 3R losses has an EV of 0.70 × 1 − 0.30 × 3 = −0.2R: winning most trades and still losing money. That is why SetupVerdict requires at least 1.5:1 — see why 1.5:1 is the minimum.
Fees: the silent part of the formula
Every trade pays fees on entry and exit (and funding on many futures positions). They make every win a little smaller and every loss a little bigger. On short timeframes, where stops are tight, fees can eat a large share of the planned risk — the reason we explain in why only 4H and 1D. Always calculate EV after fees.
The same formula at the poker table
Poker players use exactly this logic, with equity in place of win rate. In a short-stack All-In or Fold game, a Big Blind facing an 8BB all-in must call 7BB to win a 16.5BB pot, so the call is profitable with more than 42.4% equity. With 45% equity:
The player loses this hand 55% of the time and still makes money by calling every time. If you want to see how the poker side works in detail — pot odds, equity and risk of ruin — this guide to expected value in poker walks through it with real simulation data.
Turning EV into a habit
- Before the trade: know the entry, stop and target, so you know the risk-to-reward before you click.
- Estimate your win rate honestly from a journal or a backtest, not from your best week.
- Keep risk fixed at 1–2% per trade so the losing streaks that positive EV still produces cannot knock you out — see how much to risk per trade.
- Judge yourself after 50–100 trades, not after five.
How SetupVerdict builds EV into every verdict
Every SetupVerdict setup comes with an Entry, a volatility-based Stop Loss and a Take Profit at a minimum of 1.5:1 reward to risk, and the Pro position-size calculator keeps the risk per trade at the percentage you choose. When conditions do not justify a trade, the verdict is WAIT or NO TRADE — because skipping negative-EV trades is part of the edge.
Put the rules on autopilot
SetupVerdict checks trend, momentum, location, trend strength and risk on 4H and 1D candles, then gives you one verdict with Entry, Stop Loss, Take Profit and a position-size calculator. The free tool needs only a free account — no card required.
Educational content only — not financial advice. Crypto-assets are volatile and you can lose money, including all of it. Examples are illustrative and use round numbers; real results depend on prices, fees and your own decisions.