A 70% win rate can lose to a 40% win rate by more than two to one. That is the whole argument for reading profit factor instead of win rate, and it takes one table to prove.
What win rate measures
Win rate is the share of closed trades that finished profitable.
Winning trades / total closed trades x 100. Forty five winners out of 100 closed trades is 45%.
It answers exactly one question: how often you are right. It says nothing about how much you make when you are right or lose when you are wrong. A system right 40% of the time can out-earn one right 70% of the time, as the accounts below show.
One detail worth knowing about your own figure. A break-even trade is neither a win nor a loss, but it still sits in the trade count. Swingfolio computes win rate that way, keeping scratched trades in the denominator and out of the numerator, so a run of them pulls the percentage down without any losses being involved.
What profit factor measures
Profit factor is gross profit divided by gross loss over the same set of closed trades.
$40,000 of gross profit against $20,000 of gross loss is a profit factor of 2.0. You made two dollars for every dollar you lost.
The readings are arithmetic, not grades:
| Profit factor | What it means |
|---|---|
| Below 1.0 | Gross losses exceeded gross profits over the period |
| Exactly 1.0 | The two cancelled |
| 1.5 | $1.50 of gross profit per dollar of gross loss |
| 2.0 | $2.00 of gross profit per dollar of gross loss |
Where a good reading starts is a judgment, and it depends on how many trades produced the number and how much of the gross profit came from one outlier. A period with no losing trades has no profit factor at all, because the divisor is zero.
Why profit factor beats win rate
Because profit factor contains win rate. Over a set of trades, gross profit is the number of winners multiplied by the average win, and gross loss is the number of losers multiplied by the average loss. So:
profit factor = (win rate x average win) / (loss rate x average loss)
Win rate is one of four terms in that expression. Reading it alone means reading a quarter of the calculation.
Two accounts make the point.
Account A: high win rate, poor ratio. 70% win rate, $500 average win, $800 average loss. Profit factor = (0.70 x $500) / (0.30 x $800) = $350 / $240 = 1.46.
Account B: low win rate, good ratio. 40% win rate, $1,200 average win, $400 average loss. Profit factor = (0.40 x $1,200) / (0.60 x $400) = $480 / $240 = 2.00.
Account B is right on 30 fewer trades in every hundred, and makes more per dollar lost. On win rate alone you would have picked A.
Why expectancy beats both
Profit factor is a ratio, so it tells you the shape of the edge and not its size. Two accounts can both run a profit factor of 2.0 while one makes $20 a trade and the other $2,000.
Expectancy gives you the size:
(win rate x average win) - (loss rate x average loss)
Account A: (0.70 x $500) - (0.30 x $800) = $350 - $240 = $110 per trade. Account B: (0.40 x $1,200) - (0.60 x $400) = $480 - $240 = $240 per trade.
Same ranking, but now in money. Over 200 trades that is $22,000 against $48,000, and the gap is what the account pays you.
So the order is: expectancy first, because it is the one denominated in money. Profit factor second, because it normalises the same relationship into a ratio you can compare across periods and account sizes. Win rate third, because it is an input to both and useless on its own.
What moves each number
Win rate moves with selection and entry timing: which setups you take, and where in the move you take them.
Profit factor and expectancy move with the same things plus your exits. Holding winners longer raises average win; exiting losers closer to your stop lowers average loss. Both raise the ratio without a single extra winning trade.
That is why win rate is the weakest of the three to optimise directly. The easiest way to raise it is to close winners sooner, which lowers your average win at the same time, and the two changes can cancel. Account A above is the shape that produces: right more often than B, earning less than half as much per trade.
Where different strategies sit
A strategy that aims for large moves and exits many attempts quickly at a small loss produces a low win rate and a large average win. A strategy that takes frequent small profits produces the opposite. Both can carry the same profit factor, and neither win rate says anything about which is better.
The comparison only means something within one strategy over time. Your own win rate this quarter against your own last quarter is a signal. Your win rate against someone else's is not.
Measure all three
Swingfolio's Analytics page carries the three side by side in its top strip: Win %, PF and Expect. Beside them sits the trade count, which tells you how much weight any of the three deserves. A Rolling Profit Factor chart underneath shows whether the ratio is holding as trades accumulate. Each portfolio's own screen repeats win rate, profit factor and expectancy for that account alone.
Start the 30-day trial and read the three together on your own closed trades.