Profit Factor
Total money won on winning trades divided by total money lost on losing trades.
In plain English
Total money won on winning trades divided by total money lost on losing trades.
Profit factor is a one-number report card for a strategy. Add up every dollar won on winning trades, add up every dollar lost on losers, and divide the first by the second. Above 1.0, the strategy made money; below 1.0, it lost.
A profit factor of 1.5 means you made 1.50 for every 1.00 you lost. It shows up in every backtest report. Be suspicious of sky-high numbers from a small sample of trades: a few lucky wins can make a bad system look brilliant.
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