Profit factor (PF) compares two sums calculated from the same sample of closed trades:
profit factor = gross profit / |gross loss|
If positive trades total 12,000 and negative trades total −8,000, profit factor is 1.5. A value of 1 means that the two sums are equal before any components excluded by the reporting convention.
How to use it without ambiguity
Profit factor describes the aggregate, not the average result of one trade; it is therefore different from payoff ratio. By itself it does not show the sample's duration, number of trades, drawdown or dependence on a few outliers.
Before comparing two values, check that commissions, slippage, financing, currency and closing rules are treated consistently. The full Profit factor entry develops its relationship with expectancy, sample size and drawdown.
Sources
- MetaQuotes, MetaTrader 5 Help — Testing Report — Defines gross profit, gross loss and profit factor in strategy-testing reports.
- TradeStation Help, About Performance Report — Documents profit factor as gross profit divided by gross loss in performance reports.