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Profit factor

Profit factor is your total gains divided by your total losses, in absolute value. A profit factor of 1.4 means that for every dollar lost, you made $1.40. Above 1 the system is profitable over the measured period; at exactly 1 it treads water while paying fees.

The formula

Total gains ÷ total losses (absolute value).

How to read it

How much you earn per $1 lost. Above 1 = profitable.

It is the figure that best sums up a system in one number, because it weighs trades instead of counting them. Between 1.2 and 1.8, a system is credible and liveable. It becomes far more useful read per setup than globally: that is where you find that one configuration carries the whole result, and another eats it.

The classic mistake

Celebrating a profit factor of 4. On a real sample, a figure like that almost always comes from one huge trade or a run that is too short. Remove the biggest winner and recompute: if the figure collapses, it was not a system, it was one lucky trade.

To go deeper on this : read the full guide. Every term is gathered in the glossary.