Profit Factor

Risk Management

The ratio of gross profits to gross losses. A profit factor above 1.0 means the system is profitable; above 1.5 is good; above 2.0 is excellent. Key backtesting metric.

Related Terms

Expectancy

A measure of the average amount you can expect to win or lose per trade: (Win Rate x Avg Win) - (Loss Rate x Avg Loss).

Win Rate

The percentage of trades that are profitable.

Backtesting

Testing a trading strategy against historical data to evaluate how it would have performed.

Learn More

Expectancy: Your Edge Quantified

Level 4: Risk & Money Management · 20 min

Backtesting Your Strategy

Level 5: Building a Strategy · 25 min