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Profit Factor (PF) compares the sum of winning outcomes with the absolute sum of losing outcomes. The ratio is simple; judging a strategy from it is not.
What 1.50 means
In a hypothetical sample, profits total 12,000 dollars and losses total −8,000. PF = 12,000 ÷ 8,000 = 1.50: 1.50 dollars of profit per dollar lost. It does not mean the account returned 50%.
Use the positive magnitude of aggregate losses in the denominator. With profits but no losses, there is no finite ratio. With both sums zero, the ratio is undefined. Label these cases separately rather than treating them as excellent scores.
Apply costs at trade level
Deduct fees, execution costs, and applicable funding from each trade, then classify and aggregate the net winners and losers. Costs can turn a small winner into a loser.
Do not deduct costs twice when the input already contains net outcomes. Show before-cost and after-cost PF with their calculation conventions.
Remove the largest winner as a sensitivity check
If one trade contributes 10,000 of the 12,000 dollars of profit, PF without it is 2,000 ÷ 8,000 = 0.25. This is a concentration check, not a reason to delete a legitimate observation from the reported result.
PF does not describe trade order, drawdown, capital usage, holding time, or sample size. Pair it with trade count, average outcome, MDD, and period breakdowns. Separate rule-development data from later evaluation data.
Sources and documentation
www.tradingview.com — 43000681698-profit-factor
Continue with common foundations
Expectancy · Risk–Reward · Maximum drawdown · Trading P&L Calculator
Research methods and reporting standards
For education and research. Numerical examples are teaching assumptions unless explicitly identified otherwise. Historical results do not guarantee future performance.