In short. Profit factor = gross profit / gross loss: the sum of all winning trades divided by the absolute sum of all losing trades. Above 1 the strategy makes money, below 1 it loses. A profit factor of 1.5 means every dollar lost came with a dollar and a half earned.
Formula and example
PF = Sum of winning trades / |Sum of losing trades|
20 trades in a month: 9 winners for $1,800 and 11 losers for $1,100. Profit factor = 1,800 / 1,100 ≈ 1.64, net result +$700. Use net results — including commissions and swaps — or the profit factor is overstated.
Profit factor from win rate and win/loss ratio
If win rate is the share of winners and payoff is the average win divided by the average loss, then PF = win rate / (1 − win rate) × payoff. The same value comes from very different trading styles:
| Win rate | Payoff 1 | Payoff 1.5 | Payoff 2 | Payoff 3 |
|---|---|---|---|---|
| 30% | 0.43 | 0.64 | 0.86 | 1.29 |
| 40% | 0.67 | 1.00 | 1.33 | 2.00 |
| 50% | 1.00 | 1.50 | 2.00 | 3.00 |
| 60% | 1.50 | 2.25 | 3.00 | 4.50 |
A trader with a 30% win rate and wins three times the losses and a trader with a 60% win rate and equal wins and losses are almost equally effective: profit factor 1.29 and 1.5.
How it links to neighboring metrics
- Net result = gross loss × (PF − 1). In the example: 1,100 × (1.636 − 1) ≈ $700.
- Expectancy = net result / number of trades: 700 / 20 = $35 per trade.
- Payoff and win rate. Average win 1,800 / 9 = $200, average loss 1,100 / 11 = $100, payoff 2, win rate 45%: 0.45 / 0.55 × 2 ≈ 1.64 — the same figure as computed directly.
- How smooth the results are is covered in «Sharpe ratio, Z-score, AHPR and GHPR explained».
Two checks on an example: an outlier and costs
Outlier. Say the best of the 9 winners made $900. Without it the profit factor is 900 / 1,100 ≈ 0.82 and the month ends at −$200: one trade made the whole result.
Costs. A scalper makes 200 trades in a month: 120 winners of $12 and 80 losers of $15 before commission — a profit factor of 1,440 / 1,200 = 1.2. A $1 commission per trade turns winners into $11 and losers into $16: the profit factor drops to 1,320 / 1,280 ≈ 1.03 and the result to $40 instead of $240. The smaller the trades, the more costs move the number.
Profit factor across trading styles
- Scalping — a high win rate with payoff below 1: 65% and 0.7 give a profit factor of 1.3. The margin is thin, and spread and commission eat it, as in the example above.
- Trend following — a 30–40% win rate with payoff 2–3: 35% and 2.5 give about 1.35. It rests on rare large winners, and losing streaks are long.
- An averaging grid does not close its losing legs until the whole grid is in profit, so the profit factor on closed trades runs high: 95 closes at +$20 and 5 at −$40 give 9.5. One grid closed at a stop for −$2,500 — and it falls to 1,900 / 2,700 ≈ 0.70, a result of −$800. For grids watch equity drawdown — more in «Grid EAs and martingale: how to calculate the risk».
How to read profit factor
- Below 1 — losses exceed profits: over the long run the strategy loses.
- Around 1 — break-even; commissions and spread easily push it negative.
- 1.3–2 — a common range for working strategies over hundreds of trades.
- Above 3 on a small sample — check whether the result rests on one or two big trades or on curve fitting.
These are guidelines, not norms: the value depends on the market, the style and the period. Which metrics to read alongside profit factor is covered in «How to evaluate a trading strategy».
What profit factor does not show
- Risk and drawdown. A PF of 2 can belong to an account that lost 40% along the way. Read it together with drawdown — how to measure it is explained in «How to calculate account drawdown».
- Sample size. Over 15 trades profit factor is random; meaningful conclusions start at 50–100 trades.
- Outliers. One big winner can make the PF look good while every other trade loses. Compare the result without the best trade.
- How much one trade earns. That is what expectancy shows.
What to do with the number: a checklist
- Check that profit factor is computed from net results — with commission and swap.
- See how many trades it rests on: under 50, the conclusion is preliminary.
- Remove the best trade and recompute: below 1 means the result rests on an outlier.
- Put equity drawdown next to it — especially for grids and averaging EAs.
- Break it down by setup, instrument and session and find the parts below 1.
- Compare it month by month: a steady decline is a reason to investigate, not to wait.
Profit factor in Davinchu
The MetaTrader 5 report («View» → «Reports») has it too, but only for the current account and without a breakdown by your setups. Davinchu calculates profit factor itself, from net trade results — including commission and swap:
- on the account page — Profit Factor on the «Trades» tab for the selected period («Day», «Week», «Month», «Year», «All»), across every trade in that period;
- in the trading journal — with filters by period, account, instrument, direction, setup and session, so you can see where the strategy actually makes money.
If the selection has no losing trades, you see «∞» instead of a number. In the journal it sits next to «Payoff», «Average win», «Average loss» and «Expectancy». A MetaTrader 5 history report can be checked without connecting the account in the MT5 report analyzer: profit factor, expectancy and a breakdown by symbol, EA and month; the file is parsed in your browser.
On the Free plan two accounts connect at no cost.