Profit factor
Total gross profit divided by total gross loss.
Full explanation
A profit factor of 1.0 means you broke even before costs. Above 1.0 is profitable; roughly 1.3 to 1.6 is a realistic target for a sound discretionary strategy, and anything much above 2.0 over a small sample usually means the sample is too small.
Because it uses totals rather than averages, one outsized winner can inflate it. Check the figure again with your largest win removed — if it collapses, the result came from luck rather than method.
It pairs well with expectancy: profit factor shows the overall ratio, expectancy shows what a typical trade returns.
Why traders watch it
It is a fast health check on a strategy or a month, and it shows immediately when costs are eating the edge.
Trading considerations
- Recalculate with the biggest winner excluded to test robustness.
- Include spread and commission in the loss side.
- Compare like periods — profit factor swings a lot month to month.
Educational guidance only — never a trading signal or recommendation.
Related indicators
Confirmation
Observable evidence, defined in advance, that a setup is doing what you expected before you commit.
Drawdown
Drawdown is the fall from an account's peak value to its subsequent low, expressed in money or as a percentage. It measures the pain of a losing run rather than the final result. A 20% drawdown needs a 25% gain to recover, and the deeper it goes the harder recovery becomes, which is why controlling drawdown matters more than chasing returns.
Entry
The point at which you open a position — chosen in advance, with a defined trigger and invalidation.
Risk-controlled plan
A plan where the loss on every trade, and for the day as a whole, is decided before the market opens.
Risk-to-reward ratio
The comparison of what you stand to lose against what you stand to gain on a trade, calculated before entry.
Stop loss
A pre-set order that closes a position once price proves the idea wrong, capping the loss.