Profit factor is one of the quickest ways to judge whether a strategy, or a trader, has an edge. It answers a simple question: for every dollar you lose, how many do you make back?
The formula
Profit factor = Gross profit ÷ Gross loss
Add up every winning trade (gross profit) and every losing trade (gross loss, as a positive number), then divide.
Example
Over a month you have 40 trades:
- Winning trades add up to $12,400
- Losing trades add up to $6,200
Profit factor = $12,400 ÷ $6,200 = 2.0. You made $2 for every $1 you lost, and your net profit was $6,200.
Get these numbers calculated for you
VOLERON works out expectancy, profit factor, win rate and drawdown for every setup and session, automatically.
Try VOLERON free for 7 daysWhat's a good profit factor?
| Profit factor | What it means |
|---|---|
| Below 1.0 | Losing money overall |
| 1.0 – 1.3 | Thin edge. Fees and slippage can wipe it out |
| 1.3 – 2.0 | Solid, realistic edge for most active traders |
| 2.0 – 3.0 | Strong. Check the sample size is decent |
| Above 3.0 | Excellent, or a sample that's too small. Be sceptical until you have more trades |
Profit factor vs expectancy
They describe the same edge from different angles. Expectancy tells you the average result per trade. Profit factor tells you the ratio of wins to losses in money. A trader taking very few trades can have a high profit factor with a small total profit; expectancy and trade count show that more clearly. Use both.
How to improve your profit factor
- Cut your worst setup. Calculate profit factor per setup. Removing one setup below 1.0 often lifts the overall number more than any other change.
- Stop letting losers run. Losses bigger than your planned 1R drag gross loss up fast. Flag every trade worse than −1R in your journal.
- Stay in winners a little longer. If price usually keeps going after you exit, test a slightly bigger target or a trailing stop.
- Trade your best session only. Profit factor often varies a lot by session. See best time to trade futures.