TRADING PERFORMANCE GLOSSARY

Profit factor

Profit factor is the total value of winning trades divided by the absolute total value of losing trades. It summarizes the balance between gains and losses but does not describe timing, drawdown, or the number of trades.

Updated August 31, 2026 · Educational information only

THE FORMULA

Profit factor = gross profit ÷ gross loss

Use consistent units and state how breakevens, fees, and incomplete trades are treated.

WORKED EXAMPLE

See the calculation.

Gross wins of $8,400 divided by gross losses of $4,000 produce a profit factor of 2.10. Net result before omitted costs is $4,400.

HOW TO INTERPRET IT

Ask what the number leaves out.

A value above 1 means gross wins exceeded gross losses in the sample.
A value below 1 means gross losses exceeded gross wins.
When gross loss is zero, the ratio is unbounded; that edge case should be labeled rather than replaced with a made-up finite value.

COMMON MISTAKES

Keep comparisons honest.

Entering gross loss as a negative number when the formula expects a positive magnitude.
Comparing ratios built with different fee conventions.
Ignoring outlier dependence and sample size.