Profit Factor Calculator

Profit Factor is the ratio of gross profits to gross losses. It is one of the most reliable metrics for evaluating trading system quality.

Profit Factor = Gross Profit / Gross Loss

Interpretation:

• < 1.0 — Losing system (losses exceed profits)
• 1.0 — Breakeven
• 1.0–1.5 — Below average, likely not worth trading after costs
• 1.5–2.0 — Good, tradeable system
• 2.0–3.0 — Very good system
• 3.0+ — Excellent (but verify it isn’t curve-fitted)

Why profit factor matters:

• Unlike win rate alone, it accounts for the size of wins and losses
• A system with 30% win rate can have a profit factor above 2.0 if winners are large
• Profit factor below 1.5 may not survive real-world slippage and commissions
• Over-optimized backtests often show profit factors above 4.0 — be skeptical