Profit Factor in Trading: Formula, Good Benchmarks & Win Rate Comparison
Profit Factor = Gross Profit ÷ Gross Loss. 1.5+ is good, 2.0+ is strong.
What is Profit Factor in Trading?
Profit factor measures your strategy's profitability by comparing total gains to total losses. The profit factor formula is simple: Gross Profit ÷ Gross Loss. A good profit factor is 1.5 or higher—anything below 1.0 means your strategy is losing money. For statistically reliable results, ensure you have enough trades in your backtest.
Which Strategy Wins?
Win rate alone doesn't determine profitability. Compare these two trading strategies below to understand why profit factor is often the better metric for trading strategy evaluation. The examples demonstrate how a lower win rate can still produce superior returns when the profit factor is higher.
Win Rate: 85%
Average Win: $120
Average Loss: $480
Profit Factor: 1.42
Net Result: +$3,000
Win Rate: 45%
Average Win: $400
Average Loss: $180
Profit Factor: 1.82
Net Result: +$8,100
Calculation Breakdown (100 Trades)
85 wins × $120 = $10,200
15 losses × $480 = $7,200
Profit Factor: $10,200 ÷ $7,200 = 1.42
Net: +$3,000
45 wins × $400 = $18,000
55 losses × $180 = $9,900
Profit Factor: $18,000 ÷ $9,900 = 1.82
Net: +$8,100
Profit Factor Calculator
Use this profit factor calculator to evaluate your trading strategy's profitability. Enter your total gross profits and losses from your backtest results to instantly see your profit factor and whether your win rate translates into actual edge. Need help exporting your data? See our TradingView export guide.
Is Win Rate or Profit Factor More Important?
Studies in behavioral finance show novice traders disproportionately focus on win rate due to loss aversion bias (Kahneman & Tversky, 1979). This psychological tendency leads to poor strategy selection.
The Pain
High win rate feels good but hides losses
80% win rate can still lose money
Spreadsheets don't show risk-adjusted returns or drawdown risk
Most traders optimize for the wrong metric
The Solution
Profit factor reveals true edge
Accounts for win size vs loss size
40% win rate can outperform 80%
One metric to rule them all
Once you find a strategy with solid profit factor, validate its robustness using Monte Carlo stress testing to ensure the edge holds under different market conditions.
Profit Factor Analysis Tools Comparison
Comparing different methods for analyzing your strategy's profit factor reveals significant differences in efficiency and accuracy.
| Feature | BacktestBase | Spreadsheets |
|---|---|---|
| Auto profit factor calc | ✓ | ✗Manual formulas |
| Visual strategy comparison | ✓ | ✗Limited |
| Risk-adjusted metrics | ✓ | ✗Complex |
| Historical tracking | ✓ | ✗Manual updates |
| Time to analyze | ✓Instant | ✗Hours |
If you're looking for automated profit factor analysis with visual strategy comparison, calculates these metrics instantly from your TradingView exports—no spreadsheet formulas required.
Profit Factor Limitations
While profit factor is essential, it has limitations you should understand:
A 2.0 profit factor strategy with 50% drawdowns may be unacceptable for most traders.
Doesn't reveal if profits are spread evenly or concentrated in a few trades.
Small sample sizes can produce misleading profit factors that won't hold up.
Same profit factor from 10 vs 1,000 trades has very different statistical implications.
Best practice: Combine profit factor with drawdown analysis, sample size validation, and Monte Carlo testing for a complete picture.
Profit Factor vs Risk-Reward Ratio
These metrics measure different aspects of trading performance:
Forward-looking metric. Measures potential gain vs potential loss per trade (e.g., 2:1 means risking $100 to make $200). It's your target before entering.
Backward-looking metric. Measures actual historical performance across all trades. It's what actually happened in your backtest.
Key insight: A 3:1 risk-reward target might produce a 1.8 profit factor in practice due to imperfect execution, early exits, and market conditions.
Profit Factor vs Expectancy
Both metrics measure profitability, but express it differently:
Average dollar amount you expect to win or lose per trade.
= (Win Rate × Avg Win) − (Loss Rate × Avg Loss)
Ratio of total profits to total losses across all trades.
= Gross Profit ÷ Gross Loss
Key insight: A positive expectancy always means profit factor > 1.0. Expectancy gives you dollars per trade, while profit factor gives you the efficiency ratio.
Trading Glossary
- Profit Factor
- Profit factor is a trading performance metric calculated by dividing total gross profit by total gross loss. It shows how much money you make on winning trades compared to how much you lose on losing trades. Formula: Profit Factor = Total Gross Profit ÷ Total Gross Loss
- Win Rate
- Win rate (also called win percentage) is the percentage of trades that are profitable. It's calculated by dividing the number of winning trades by the total number of trades. Formula: Win Rate = (Winning Trades ÷ Total Trades) × 100
- Gross Profit vs Gross Loss
- Gross profit is the sum of all profitable trades, while gross loss is the sum of all losing trades. These are the raw numbers used to calculate profit factor, before accounting for fees or slippage. Example: If you have 3 winning trades (+$100, +$200, +$150) and 2 losing trades (-$80, -$120), then Gross Profit = $450 and Gross Loss = $200
Frequently Asked Questions
What is a good profit factor?
A good profit factor is 1.5 or higher. Profit factors between 1.5-2.0 are considered solid, while 2.0+ is strong/robust. Below 1.5 is weak and vulnerable to slippage and transaction costs. Below 1.0 means the strategy loses money overall.
What is the profit factor formula?
Profit Factor = Gross Profit ÷ Gross Loss. Add up all your winning trades to get Gross Profit, add up all losing trades (as positive numbers) to get Gross Loss, then divide. A result above 1.0 means profitable.
What's a good profit factor for day trading?
According to institutional research on trading performance metrics, day traders should generally target a profit factor above 1.5, as frequent trading requires higher edge to overcome transaction costs and slippage. For swing trading, 1.3+ can be acceptable.
Can a strategy with low win rate be profitable?
Yes, according to studies of trend-following strategies, win rates of 30-40% can be highly profitable if the profit factor exceeds 1.5 through significantly larger average wins compared to average losses. Many successful hedge funds use low win rate strategies.
How to calculate profit factor step by step?
Follow these steps to calculate your strategy's profit factor:
- Add up all your winning trades to get Total Gross Profit
- Add up all your losing trades to get Total Gross Loss (use positive numbers)
- Divide Total Gross Profit by Total Gross Loss
- If result > 1.0, your strategy is profitable. If < 1.0, it loses money
Is 70% win rate good for trading?
A 70% win rate can be excellent or terrible depending on profit factor. If your average win is smaller than your average loss, even 70% win rate will lose money. Always check profit factor first - aim for 1.5+ regardless of win rate percentage.
How can I see my strategy's profit factor?
BacktestBase displays profit factor metrics parsed from your uploaded TradingView strategy tester results, organizing this data alongside other performance metrics for easy comparison across multiple strategies.
Where do I find profit factor in TradingView?
In TradingView, run your strategy backtest and open the Strategy Tester panel at the bottom of the screen. Click the "Performance Summary" tab—profit factor is listed alongside other metrics like net profit and max drawdown. You can export this data using our TradingView export guide.
Is win rate or profit factor more important?
Profit factor is more important because it directly measures profitability (total profits vs losses), while win rate alone can be misleading. A 90% win rate strategy can still lose money if average losses exceed average wins. Always evaluate profit factor first—aim for 1.5+ regardless of win rate percentage.
Related Trading Metrics Articles
Organize Your Strategy Metrics
BacktestBase parses profit factor and win rate data from your TradingView strategy tester results, organizing these metrics alongside other performance data for easy comparison across multiple strategies. Upload TradingView XLSX files and see profit factor instantly, compare profit factors across multiple strategies side-by-side, and see how profit factor impacts strategy robustness scoring through Monte Carlo analysis.
BacktestBase is an educational and analytical tool only. Past performance does not guarantee future results. Trading metrics should be evaluated together, not in isolation, when assessing strategy performance. This is not financial advice.