Profit Factor
Profit factor is the ratio of total profits to total losses. Above 1.0 is profitable, above 1.5 is good, above 2.0 is excellent. It's a single-number summary of strategy quality.
Definition
Profit factor combines win rate, loss rate, average win, and average loss into one number. It's particularly useful for comparing strategies — a profit factor of 1.8 means you make $1.80 for every $1 you lose. Unlike Sharpe Ratio, profit factor doesn't penalize volatility, so a high profit factor doesn't guarantee a smooth equity curve.
Formula
Profit Factor = Total Gross Profit ÷ Total Gross Loss
Example
Strategy makes $5,000 in wins and $2,500 in losses over 100 trades. Profit factor = 5,000 ÷ 2,500 = 2.0.