Profit Factor

What is Profit Factor?

Profit factor is your total gross profit divided by your total gross loss (using absolute values). If your winning trades totaled $15,000 and your losing trades totaled $10,000, your profit factor is 1.5. It's a single number that captures the relationship between your wins and losses.

Interpreting Profit Factor

• Below 1.0: You're losing money — losses exceed profits
• 1.0 - 1.2: Marginally profitable — commissions and slippage may eat your edge
• 1.2 - 1.5: Decent profitability — sustainable with consistent execution
• 1.5 - 2.0: Strong performance — clear edge in your strategy
• Above 2.0: Excellent — but verify with sufficient sample size (50+ trades)

Why Profit Factor Beats Win Rate

Profit factor is more useful than win rate because it accounts for the SIZE of wins and losses, not just their frequency. A trader with 40% win rate but large winners can have a profit factor of 2.0, while a trader with 70% win rate but tiny winners and large losers might have a profit factor of 0.8. Always evaluate profit factor alongside your trade count — anything under 30 trades is not statistically meaningful.