Profit Factor
The ratio of gross profit to gross loss — how many dollars a strategy makes for every dollar it loses.
Profit factor is calculated by dividing the sum of all winning trades by the sum of all losing trades (as a positive number). A profit factor of 1.0 means a strategy broke even; anything above 1.0 means it was profitable.
Unlike win rate, profit factor accounts for the size of wins and losses, not just how often each occurs. A strategy can have a low win rate and still have an excellent profit factor if its average winning trade is much larger than its average losing trade.
Profit Factor = Gross Profit ÷ Gross Loss
A strategy with $19,400 in total winning trades and $10,000 in total losing trades has a profit factor of 1.94 — for every $1 it lost, it made $1.94.
Why it matters
Profit factor is one of the clearest single numbers for judging whether a strategy's edge is real. Below 1.2 is generally considered weak, 1.5–2.0 is solid, and above 2.0 is strong — though it should always be read alongside trade count, since a handful of trades can produce a misleadingly high profit factor.