Profit Factor: What It Is, How to Calculate It and What a Good Value Is

It's one of the most widely used metrics for evaluating a strategy or a trading period, because it sums up in one number the relationship between what you win and what you lose. Here you'll see how it's calculated, how to read it and when it misleads.

What is profit factor in trading?

It's a ratio:

Profit factor = sum of gains ÷ sum of losses (in absolute value)

• Gains are the results of all trades closed in profit.
• Losses are the results of all trades closed at a loss, without the minus sign.
• Trades that close at 0 don't count on either side.

It's calculated over a set of trades: a week, a month, a strategy or an account. It doesn't make sense for a single trade.

How do you calculate profit factor? A step-by-step example

Example (fictitious data), 10 trades in one month:

1. Add up the gains: 300 + 220 + 400 + 180 = 1,100 USD
2. Add up the losses without the sign: 150 + 150 + 100 + 150 + 120 + 80 = 750 USD
3. Divide: 1,100 ÷ 750 = 1.47

In this example, for every dollar lost, 1.47 dollars were made. The net result for the month is 1,100 − 750 = +350 USD.

Notice the detail: only 4 of the 10 trades were winners (a 40% win rate) and the profit factor is still above 1. The winners were bigger than the losers.

What is a good profit factor?

There's no universal number. What can be said for certain:

• Below 1: in that period you lost more than you made.
• Equal to 1: you broke even, before costs.
• Above 1: you made more than you lost.

Beyond that, what counts as good depends on your strategy:

• A strategy with many small trades and a high win rate can work with a moderate profit factor.
• A strategy that looks for a few trades with large targets usually has a lower win rate, and its profit factor can vary a lot from one month to the next.

The most useful thing is to compare yourself with yourself: the profit factor of this strategy against another, or this month against previous ones, with a similar number of trades. These figures are for guidance only, not a recommendation or a target.

How does it relate to win rate and risk/reward ratio?

Profit factor combines the two:

• Win rate tells you how often you win.
• Risk/reward ratio (R:R) tells you how much you win when you're right, relative to what you risk.

With a fixed average R:R, the approximate profit factor is:

Profit factor ≈ (win rate × R:R) ÷ (1 − win rate)

Example (fictitious data): with a 40% win rate and an average R:R of 2:1, the profit factor is (0.40 × 2) ÷ 0.60 = 1.33. With the same win rate and an R:R of 1:1, it would be 0.40 ÷ 0.60 = 0.67: in this example, the result would be negative.

It's an approximation: in reality every trade has a different result. To calculate the R:R of a trade before you enter, use the risk/reward calculator.

When does profit factor mislead?

• With few trades. With 5 or 10 trades, a single large trade changes the number completely. Check how many trades are behind it before drawing conclusions.
• If you leave out costs. Commissions, swaps and spread reduce the real result. Calculate profit factor with the net result of each trade.
• If one trade explains everything. If you remove your best trade and the profit factor drops below 1, your result depends on an isolated case.
• If you mix strategies. A good overall profit factor can hide a strategy that loses. Calculate it per strategy as well.
• If you ignore drawdown. Two periods with the same profit factor can have had very different drops along the way.

How can you improve your profit factor?

There are no shortcuts, but a journal helps you see where to act:

1. Calculate it by strategy, instrument and session. If part of your trading has a profit factor below 1, that's your first question.
2. Review your big losses. Did you respect your stop? A loss bigger than planned weighs heavily on the divisor.
3. Review how you close your winners. Systematically closing before your target shrinks the numerator.
4. Change one thing at a time and measure again with enough trades.

For that you need to record all your trades, not just the ones you remember. If you don't keep one yet, start with what a trading journal is and how to use it.

How do you calculate your profit factor in a spreadsheet?

If you keep your trades in a spreadsheet, with each result in column B (B2 to B200), one formula is enough:

=SUMIF(B2:B200,">0") / ABS(SUMIF(B2:B200,"<0"))

• The first part adds up only the positive results.
• The second adds up the negative ones and removes the sign.
• To calculate it per strategy, add a column with each trade's strategy and use SUMIFS with both conditions.

Two tips to make the number reliable: record the net result, including commissions and swaps, and don't delete "odd" trades. If a trade went wrong because of your own mistake, it's still part of your profit factor.

If you connect your account to a journal, the calculation happens automatically with every sync, no formulas needed.

Frequently asked questions

Educational content. Not financial advice. Trading involves a high risk of loss.