Profit Factor: Formula and What Counts as Good
What profit factor means, how to calculate it after costs, what counts as a good number, how it relates to win rate and expectancy, and why samples matter.
Profit factor is the money made on your winning trades divided by the money lost on your losing trades. Above 1 means the trades made money. It is one of the quickest ways to judge a backtest or a journal, because it combines how often you win with how much you make and lose.
The formula
Profit factor = total won ÷ total lost, both after costs.
If 100 trades made $13,050 on winners and lost $11,550 on losers, the profit factor is 13,050 ÷ 11,550 = 1.13.
You can also work it out from your win rate and the size of your wins and losses:
Profit factor = (win rate × average win) ÷ (loss rate × average loss)
The profit factor calculator does this for your numbers, fees included.
What counts as good
There is no official scale. As a rough guide, once the numbers are after costs and from a large sample:
| Profit factor | How to read it |
|---|---|
| Below 1 | Loses money |
| 1.0 to 1.2 | Close to break even, so a small rise in costs can erase it |
| 1.2 to 1.5 | Could be a real edge, if the sample is large |
| 1.5 to 2 | Strong, so check it on days you didn't test |
| Above 3 | Probably few trades, luck, or a rule fitted to the past |
Win rate doesn't tell you much alone
The same profit factor can come from very different strategies:
| Win rate | Average win | Average loss | Profit factor |
|---|---|---|---|
| 35% | $300 | $100 | 1.62 |
| 50% | $150 | $100 | 1.50 |
| 70% | $70 | $100 | 1.63 |
The third one feels great and the first one feels awful, but their profit factors are about the same. Per trade, the first one actually makes more: $40 against $19. That is why win rate and risk reward have to be read together.
Traps to watch for
- Small samples. A few big winners can give a high number over 30 trades. See how many trades you need.
- No costs. Fast strategies with small targets look far better before commission and slippage.
- One huge winner. Take out your best trade and recalculate. If the result collapses, you may not have an edge.
- Long losing runs. A good profit factor can still hide a drawdown you couldn't live through. The drawdown recovery calculator shows what a loss takes to repair.
Where to get your number
Your journal or a backtest report will give you the inputs. ChartTrainer's backtester shows win rate, the size of wins and losses and buy and hold beside the result, and its journal does the same for the trades you practice by hand. Backtest and practice results don't promise real results.
Questions
- What is profit factor?
- Total money made on winning trades divided by total money lost on losing trades. A profit factor of 1.5 means you made $1.50 for each $1.00 you lost.
- What is a good profit factor?
- Above 1 makes money. There is no official line, but many traders look for 1.3 to 2 after costs over a large sample. Be suspicious of very high numbers on few trades.
- Can you have a good profit factor with a low win rate?
- Yes. With a 35% win rate and winners three times the size of the losers, the profit factor is about 1.6. Win rate alone tells you little.
- Should profit factor include fees?
- Yes. Commission and slippage come off every trade, and on small targets they can take a profit factor of 1.3 below 1. Always look at it after costs.
- Is profit factor better than expectancy?
- They go together. Profit factor is a ratio and shows quality. Expectancy is what a trade is worth in dollars or R, and it shows size. Check both.