What is Profit Factor?
Profit factor is the ratio of gross profits to gross losses over a specific period, measuring how many dollars of profit you generate for every dollar lost.
Profit Factor Explained
A profit factor above 1.0 means the strategy is profitable. Most professional traders look for a profit factor of at least 1.5, meaning they make $1.50 for every $1.00 lost. A profit factor below 1.0 means the strategy is losing money. Unlike win rate, profit factor accounts for the magnitude of wins and losses.
Real-World Example
Over 100 trades, your total profits from winning trades sum to $15,000 and your total losses sum to $8,000. Your profit factor is $15,000 / $8,000 = 1.875 — you make $1.88 for every dollar lost.
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