A high win rate can make a trading strategy look great. But win rate alone does not tell you whether you are actually making money. You could win 70% of your trades and still lose money if your losing trades are significantly larger than your winners. That is why profit factor is one of the most useful metrics for evaluating trading performance.
What is profit factor?
Profit factor compares the total profits generated by winning trades with the total losses generated by losing trades.
For example, over 100 trades with $8,000 in winning trades and $5,000 in losing trades, your profit factor would be 1.60. That means you generated $1.60 in gross profits for every $1.00 lost.
What does a profit factor below 1 mean?
A profit factor below 1.0 means the trading results were unprofitable over the period being measured. A profit factor of exactly 1.0 represents breakeven before considering commissions, fees, slippage and other trading costs.
What is a good profit factor?
- Below 1.0: Losing over the measured sample
- 1.0: Approximately breakeven
- 1.0 to 1.25: Positive, but potentially vulnerable to costs or changing conditions
- 1.25 to 1.75: Stronger historical performance
- 1.75 and above: Very strong historical results, but worth examining sample size
Profit factor vs win rate
Trader A has a 70% win rate with $100 average winner and $300 average loser. Trader B has a 45% win rate with $300 average winner and $100 average loser. Trader A wins more frequently but Trader B has a considerably more profitable system. That is why profit factor becomes much more useful when viewed alongside win rate, average win, average loss and trading expectancy.
Sample size matters
Five trades with one large winner can produce a spectacular profit factor that means nothing statistically. Always ask how many trades are included, how long the period is, and whether one trade created most of the profit.
Analyze profit factor by setup
Break profit factor down by instrument, time of day, day of week, long vs short trades, or any tag you consistently track. This shows where your profits actually come from rather than hiding them in an overall number.
How to track your profit factor
MyTraderScore automatically calculates profit factor from your uploaded trading history alongside win rate, average winners and losers, and other statistics without manually calculating everything in a spreadsheet.