In trading, there are certain concepts that separate good traders from great ones — and this is one of them.
Expected Value (EV) is dynamic.
That means your trade’s expected value — your risk, reward, and probability of success — is constantly changing.
This single realization made one of the biggest differences in my own trading journey. Once I internalized it, it transformed the way I made decisions, managed positions, and understood the market in real time.
A Lesson From the Poker Table
Before diving deeper into trading, let’s take a little field trip to the poker table.
Poker is one of my favorite analogies for trading because it perfectly captures the concepts of probabilities, psychology, and adaptation.
Imagine this:
A player starts with a two-thirds probability of winning the hand. Then the flop comes.
What happens?
The odds change.
It’s not static. Each new card — the flop, turn, and river — changes the probabilities, forcing the player to recalibrate their chances of winning in real time.
When our player hits a pair of aces, their odds jump to 94%, almost a sure thing. But then — the river card hits — and everything reverses. The player loses.
The takeaway?
Throughout the hand, poker players — like traders — must constantly adapt as the odds evolve and the information changes.
Poker vs. Trading
Here’s the key difference:
In poker, true odds can be calculated. There’s a finite universe of outcomes.
You know how many outs you have, how many cards are left in the deck, and what your exact probabilities are.
In trading, it’s not that simple.
The market has infinite variables — news, liquidity, momentum, sentiment, market structure — all moving in real time.
So while poker players can calculate exact odds, traders must learn to estimate probabilities through experience, pattern recognition, and intuition.
The Parallels Between Poker and Trading
Despite those differences, the two worlds overlap beautifully.
Both require you to:
- Manage psychology and avoid tilt (yes, even Phil Hellmuth loses it sometimes).
- Bet more when the odds are in your favor — and fold when they’re not.
- Constantly act under uncertainty and re-evaluate as conditions change.
In both games, you’re making decisions with incomplete information — and the skill lies in how accurately you can update your expectations as new data comes in. If you like this comparison, you’ll really like reading about The Broken Slot Machine.
Applying Dynamic EV to Trading
Now let’s bring it back to trading.
Expected value is a mix of risk, reward, and probability — and all three change continuously as the trade unfolds.
Every second, every new bar, every tick of the Level 2 box alters the expected value of your position.
Factors like:
- Chart pattern development
- Market context
- Overall sentiment
- Volatility and liquidity
- Your own entry and stop
… all shift the equation.
As traders, our job is to update those mental calculations constantly.
A Simple Mean Reversion Example
Let’s walk through a simplified scenario to illustrate this idea.
A stock drops from $10 to $7, and you’re buying the right side of the V as it begins to recover.
You target a move back to $10 — a 50% chance of success versus a stop at $7.
You buy at $7.50, with $0.50 risk and $2.50 reward.
Your expected value (EV) is:
($2.50 × 50%) – ($0.50 × 50%) = $1.00
That’s a solid trade — at that moment in time.
Now, as the stock moves up to $8.50, things change.
The reward shrinks to $1.50, while your stop moves up to $7.50, creating $1.00 of risk.
New EV:
($1.50 × 50%) – ($1.00 × 50%) = $0.25
Still positive — but less attractive. You might reduce exposure, scaling out as the move progresses.
At $9.50, you now have only $0.50 of potential reward left versus $1.00 of downside risk.
New EV:
($0.50 × 50%) – ($1.00 × 50%) = –$0.25
At this point, EV has turned negative.
The correct move? No exposure.
Even though it might feel good psychologically to “be right” and hold for the full retracement, the math no longer supports it.
The Real Lesson
Of course, I’m not literally crunching these numbers during every trade.
You can’t — because the market’s variables are too fluid.
But what I am doing is constantly estimating — based on experience, data, and feel.
Over time, you build a mental database of how different setups unfold and how the probabilities shift as the trade progresses.
That’s what professional trading really is:
Having a more accurate mental estimation of expected value than the market.
Dynamic Decisions
Just like poker hands, certain trade setups can start off looking incredible — but unfold in a way that ruins them.
Getting “aces” in trading doesn’t guarantee you’ll win the hand.
Imagine someone telling you to always play through to the river no matter what.
That’d be awful advice.
Trading works the same way — you have to adapt.
Expected value isn’t binary. Trades don’t “work” or “fail.” They evolve — and your job is to evolve with them.
Final Thoughts
This concept is one of the most advanced — but also one of the most important — in all of trading.
Recognizing that expected value is dynamic changes the way you approach every single decision.
It helps you:
- Scale in or out intelligently
- Manage exposure dynamically
- Avoid overstaying your welcome in trades that have lost their edge
This is the kind of thinking that separates experienced traders from everyone else.
Take the time to study it, test it, and apply it.
Because once you do — it’s not just your expected value that improves.
It’s your entire trading game.
