1. What is Expected Value in Trading?

Expected Value (EV) is a fundamental concept in probability that represents the average outcome if a trade is repeated multiple times. It helps traders assess whether a trade is likely to be profitable in the long run.

2. How Does the Calculator Work?

The calculator uses the Expected Value equation:

Where:

• \( Win\ Probability \) — Probability of trade being profitable (0 to 1)
• \( Profit\ if\ Win \) — Potential profit amount in dollars
• \( Loss\ Probability \) — Probability of trade losing (0 to 1)
• \( Stake \) — Amount risked on the trade

Explanation: A positive EV suggests a potentially profitable strategy over time, while negative EV suggests a losing strategy.

3. Importance of EV Calculation

Details: Calculating EV helps traders make objective decisions, compare different trading strategies, and manage risk effectively in electric vehicle stocks or other trading scenarios.

4. Using the Calculator

Tips: Enter probabilities as decimals between 0 and 1. Ensure win probability + loss probability equals 1 for accurate results. All monetary values should be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What does a positive EV mean?
A: A positive EV indicates that the trade is expected to be profitable in the long run if repeated under the same conditions.

Q2: How accurate is EV for real trading?
A: EV provides a mathematical expectation, but real-world results may vary due to changing market conditions and execution factors.

Q3: Should I only take trades with positive EV?
A: While positive EV trades are preferable, other factors like position sizing and portfolio diversification should also be considered.

Q4: How can I estimate win probability?
A: Win probability can be estimated from historical trade data or backtesting results of similar trading setups.

Q5: Does this work for options trading?
A: Yes, the EV concept applies to all trading instruments including options, stocks, and futures.