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Average loss

The mean loss of losing trades, whose relationship to your planned risk shows whether stops are actually being honoured.

The spread of outcomes behind an expectancyA histogram of forty trades: a tall block of small losses on the left, a low spread of larger wins on the right, and a line marking the average outcome.NUMBER OF TRADES051024 LOSSES, AVG −$20016 WINS, AVG +$600EXPECTANCY +$120−$400−$200$0+$200+$400+$600+$800PROFIT OR LOSS PER TRADEexpectancy = (40% × $600) − (60% × $200) = +$120 per trade
Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.

The number itself matters less than its ratio to planned risk. If every trade is sized to lose 1R and the average loss is minus 1.4R, stops are being widened, skipped, or slipping - and the strategy's entire statistical profile is different from the one that was designed.

Reasons the average drifts above 1R: mental stops that become negotiations, stop-slippage on triggered exits, gap events, and adding to losers. Reasons it can sit below 1R: discretionary early exits, which improve the average loss while usually damaging expectancy by also cutting winners early.

Track the distribution, not just the mean. A histogram of losses clustered tightly at minus 1R with three at minus 3R tells you exactly where the risk lives, and those three trades are where the real work is.

Related: average-win, largest-loss, r-distribution, stop-slippage

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