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Performance metrics

Profit factor

Trading profit factor is total winning dollars divided by total losing dollars — the one ratio that exposes whether your wins actually outweigh your losses.

Profit factor = sum of all winning trades / absolute sum of all losing trades. Above 1.0 means you make money in aggregate; below 1.0 means you lose money.

Useful benchmarks (descriptive, not prescriptive): 1.5+ is widely considered the threshold of a 'good' strategy by quant traders; 2.0+ is exceptional; below 1.0 needs urgent review.

Profit factor is robust to win-rate variation. A 30% win-rate strategy with 4:1 average win/loss has a profit factor of 1.7 — better than a 60% win-rate strategy that wins $1 and loses $1.50 (profit factor 0.8).

Like all single-number metrics, it hides distribution. A profit factor of 2.0 driven by one massive outlier trade is fragile — re-run the math with the outlier excluded and you may discover the strategy is actually break-even.

Not financial advice. This page describes a commonly-used trading concept for educational purposes. It is not a recommendation, does not predict performance, and is not personalized advice. Past performance does not guarantee future results.