Why Profit Factor Matters More Than You Think
Profit Factor measures gross trading profits divided by gross trading losses.
Formula:
Profit Factor = Gross Profit ÷ Gross Loss
Example:
- Gross profits: ₹30,000.
- Gross losses: ₹20,000.
- Profit Factor: 1.5.
A profit factor above 1 means gross profits exceeded gross losses over the measured period, before considering any excluded costs.
However, it should be evaluated alongside sample size, drawdown, and consistency.
Key takeaway: Profit factor helps you understand how efficiently your strategy converts losses into profits.
Do you track profit factor in your trading journal?
