🧮 What is Profit Factor?
Profit Factor (PF) is a performance metric that tells you how much profit your trading system makes compared to how much it loses.
It’s calculated using the formula:
Profit Factor=Gross ProfitGross Loss\text{Profit Factor} = \frac{\text{Gross Profit}}{\text{Gross Loss}}
Where:
Gross Profit = total of all winning trades
Gross Loss = total of all losing trades
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📊 Example Calculation
Suppose in one month:
You made $3,000 from winning trades
You lost $1,000 from losing trades
Then:
Profit Factor=30001000=3.0\text{Profit Factor} = \frac{3000}{1000} = 3.0
✅ This means:
For every $1 you lose, you earn $3 — a very profitable system.
💡 How to Interpret Profit Factor
| Profit Factor | Meaning | Comment |
|---|---|---|
| < 1.0 | Losing system | You lose more than you gain |
| 1.0 | Break-even | Equal profit and loss |
| 1.1 – 1.5 | Weak profitability | Needs optimization |
| 1.5 – 2.0 | Good system | Sustainable edge |
| > 2.0 | Excellent system | Strong, consistent profitability |
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⚙️ Why Profit Factor Matters
It gives a clear ratio of reward vs. risk.
It helps evaluate the efficiency of your strategy, not just the win rate.
It’s widely used in backtesting and EA performance analysis.
⚠️ But Remember
Profit factor alone isn’t enough — it must be considered with other metrics:
Drawdown: How deep your losses go before recovery
Win rate: Percentage of winning trades
Risk-to-reward ratio: Average profit per trade vs. average loss
Sample size: More trades = more reliable PF
📘 Example Summary
| Metric | Value |
|---|---|
| Gross Profit | $4,500 |
| Gross Loss | $2,250 |
| Profit Factor | 2.0 |
| Interpretation | Strong & consistent system |
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