Performance Metric
Profit Factor — Definition & Example
Gross profit divided by gross loss — a single number summary of strategy efficiency.
Profit factor combines win frequency and win/loss size into one ratio. A profit factor of 1.0 means the strategy breaks even before costs. Above 1.5 indicates a robust strategy; above 2.0 is excellent for retail. Values above 3.0 are rare and usually indicate either an exceptional edge or curve-fit results that won't hold out of sample.
Formula
Profit Factor = Gross Profit / Gross LossExample
Across 100 trades: total profit ₹50,000, total losses ₹25,000. Profit factor = 50,000 / 25,000 = 2.0. The strategy makes ₹2 for every ₹1 risked over its sample.
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