Profit factor adds up every winning trade and divides the total by the sum of every losing trade, taken as a positive number. It combines win rate and the size of wins and losses into one ratio: a profit factor of 1.5 means you made $1.50 for every $1 lost. It ignores the order of trades, so it says nothing about drawdowns.
Example
In a month you have 25 winners totalling $4,500 and 30 losers totalling $3,000. The profit factor is $4,500 ÷ $3,000 = 1.5, with a net profit of $1,500. If $600 of fees were left out of those figures, half on winners and half on losers, the real profit factor is $4,200 ÷ $3,300 ≈ 1.27.
Why it matters
Profit factor is a quick, robust check of a strategy or a period. Values between about 1.2 and 2 are common for sustainable strategies; very high values on a small sample usually mean luck. It is standard in backtest reports, so you can compare live results with your tests.
Common mistake
Comparing a gross profit factor from a backtest with net results from live trading. Include fees, funding and slippage in both, or the backtest will look better than anything you can achieve live.
Put it into practice
- Free toolExpectancy & R-multiple calculatorTurn your win rate and average win and loss into expectancy per trade, the break-even win rate and profit factor. Plus the R-multiple of any single trade.
- In FlowsenseAnalyticsWin rate, expectancy, profit factor and drawdown from your own trades, broken down by setup, session and hold time.
FAQ
- What is a good profit factor?
- Above 1 after costs means profitable. Around 1.3 to 2 is solid for most active strategies; values above 3 over a large sample are rare.
- Can profit factor be infinite?
- With no losing trades, the formula divides by zero. That only happens on tiny samples and tells you nothing about the strategy.
- Which is better, profit factor or expectancy?
- Use both. Profit factor is a ratio that is easy to compare across periods; expectancy tells you what each trade is worth on average, in R or in dollars.