I've been observing a pattern among traders with small accounts: most make the same mistake. They risk on trades with no real chances of winning, thinking that the number of attempts compensates for poor strategy. Spoiler: it doesn't work that way.

The interesting part is that many ignore how winning and losing actually work in trading. It's not just about putting in or taking out money. I met a trader who operated for over a year with a strategy that sounded winning. Out of 100 attempts, 95 were losses. But the 5 wins exponentially multiplied his capital. How? Here’s what really matters: it’s not how many times you lose, but how much you lose when you lose and how much you gain when you win.

That led me to understand the risk-reward ratio. Basically, it’s the proportion between what you risk and what you expect to gain. If you risk $1 but only gain $2, it’s not very worthwhile. But if you risk $1 and gain $3, the outlook changes. A 1:3 ratio means you’re willing to lose one unit to win three.

Let’s take Ethereum as an example. Say ETH is at $2,000 and you have $100 to trade. With a 1:3 ratio, you’d set your stop-loss (loss point) and your take-profit (profit point) so that the reward is triple the risk. But here’s the crucial part: having a good risk-reward ratio doesn’t guarantee everything.

That’s why mathematical expectation in trading exists, a tool many overlook. The formula is simple: (% of winning trades × average gain) - (% of losing trades × average loss). With this, you evaluate whether your system is truly profitable in the long run.

Imagine that out of 10 trades, 6 are positive (60%) and 4 are negative (40%). When you win, you make $10, but when you lose, you lose $20. Applying the formula: (0.6 × 10) - (0.4 × 20) = -2. Negative mathematical expectation. That means that even if you have more wins than losses, the system isn’t sustainable.

This is why mathematical expectation in trading should be your compass. It doesn’t matter if your ratio is 1:3 if you’re mathematically losing money. Adjust your position sizes, modify your entry points, recalculate everything using this formula with your actual trades.

Financial psychology works against us: we follow the herd, overestimate our predictions, cling to losing positions, confuse luck with skill. But if you apply cold numbers, if you truly calculate your mathematical expectation, you gain an advantage most don’t use.

Take time to review your trades from last year through this lens. What was your actual win percentage? How much did you average gain? How much did you lose? Substitute those numbers into the formula and you’ll know if your system works or if adjustments are needed. Because in the end, as Benjamin Graham said, your worst enemy is probably yourself. But with mathematical expectation in your corner, you have something stronger than intuition.