Expected Value (EV) is a statistical concept that indicates whether our trading system or strategy will yield positive, negative, or neutral results in the medium or long term. It is based on previous results. As we know, past performance does not guarantee future results, but it helps us get an idea of how it might work and allows us to base our decisions on objective terms.
The formula for calculating Expected Value (EV) is as follows:
Expected Value (EV) = (Win Rate * Average Win) - (Loss Rate * Average Loss)
When interpreting the result, it indicates whether you will gain or lose in the medium or long term per unit of currency at risk.
An example: A trader achieves an expected value of 0.5 with their trading operations. This means that every time they risk 1€ in the market, they gain 0.5€ in profit.