GLOSSARY · STATISTICS
What is profit factor?
Profit factor is gross profit divided by gross loss, so a value above 1.0 means a strategy made more than it lost over the measured period.
What it means
It is a better single summary than win rate because it incorporates the size of wins and losses rather than only their count. Roughly, values below 1.2 are fragile, 1.3 to 1.6 is a realistic band for a genuine retail edge, and anything above 2.0 over a short sample should be assumed to be curve-fitted until demonstrated otherwise.
Why it matters
The metric is highly sensitive to outliers on small samples. One exceptional winner can lift profit factor from 1.1 to 1.8, which describes luck rather than edge. Checking the figure with the single best trade removed is a fast and revealing sanity test.
What this changes in practice
It also ignores sequence entirely. A profit factor of 1.5 achieved by a smooth climb and one achieved by a 40% drawdown followed by a recovery are indistinguishable in this measure, which is why it should always be read alongside maximum drawdown.
Related terms
- ExpectancyExpectancy is the average amount a strategy is expected to win or lose per trade, calculated fro…
- Win rateWin rate is the percentage of trades that close profitably, and on its own it says nothing usefu…
- Maximum drawdownMaximum drawdown is the largest peak-to-trough equity decline observed over a test period, used …
- Sample sizeSample size is the number of trades a performance figure is computed from, and it determines how…
Educational information only, not financial advice. Trading leveraged products carries substantial risk of loss. Last updated 2026-08-11.