Profit Factor
Gross winning trades divided by gross losing trades. A profit factor above 1.5 indicates a reliable positive edge.
Formula
Profit Factor = Gross Profit / Gross Loss
Profit factor divides total profit from winning trades by the total loss from losing trades. A profit factor of 1.0 is break-even; below 1.0 is a losing system; 1.5–2.0+ is considered a robust edge.
Unlike expectancy, profit factor requires no knowledge of win rate or average win/loss separately — it is a single number that collapses everything. It is also robust to outliers, since a single massive winner inflates the numerator transparently.
Example
Over 50 trades: winners totalled $8,400; losers totalled $4,200. Profit factor = $8,400 / $4,200 = 2.0. For every dollar lost, the system makes two back. Strong edge.
Related Terms
Expectancy
The average dollar amount you expect to make per dollar risked, calculated from your win rate and average win/loss sizes.
IntermediateR-Multiple
A trade's result expressed as a multiple of initial risk. A trade that earns 2× the amount risked is a +2R winner.
IntermediateSharpe Ratio
Return per unit of total risk — how much reward you earn for each unit of volatility taken. Higher is better.
IntermediateTrade Journal
A systematic record of every trade including entry, exit, size, reasoning, and outcome — the primary tool for improving a trading edge.
BeginnerWin Rate
The percentage of trades that close at a profit. High win rate does not guarantee profitability without a favourable risk-reward ratio.
Beginner