Profit factor
Profit factor is total gross profit divided by total gross loss over a period. Above 1 the strategy made money; below 1 it lost money.
How it works
Formula: profit factor = gross profit / gross loss (the loss taken as a positive number). If winning trades made $3,000 and losing trades cost $2,000, profit factor is 1.5: you made a dollar and a half for every dollar lost.
It is handy because one number combines win rate and trade size. A value near 1 means the strategy barely earns anything and can easily go negative after fees. Many traders treat 1.3–1.5 or higher as workable, and values above 3 over a large sample as a reason to check a backtest for overfitting.
Profit factor does not show how deep drawdowns were or how many trades were in the sample. So it is read alongside maximum drawdown, trade count and expectancy.
In a quarter you take 50 trades. Winners add up to $4,200, losers to $2,800. Profit factor = 4,200 / 2,800 = 1.5. If fees took another $800 from profit, it would drop to 3,400 / 2,800 ≈ 1.21.
The mistake is celebrating a high profit factor on 10–15 trades, or on a backtest whose settings were tuned to the past. One lucky big trade can produce a profit factor of 4 on a small sample. Check it over many trades and on data that was not used to set the parameters.
Questions and answers
What is profit factor in simple terms?
It is how many times bigger your total wins are than your total losses. A value of 2 means you made two dollars for every dollar lost.
What is a good profit factor?
Values of 1.3–1.5 or more after fees are usually seen as workable. Very high values on a small sample more often mean luck or overfitting.
How is profit factor different from expectancy?
Profit factor is a ratio, while expectancy is the average result of one trade in money or R. Both show a profitable strategy, but they are read differently.
Related terms
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Updated: 2026-10-19