What Is Profit Factor In Trading?

Additionally, in a situation with a few large winners and frequent losers it will take a considerable number of occurrences to find the true profit factor of a strategy.

For example, if we simply removed trade 5 from this example the profit factor is now negative.

Bottom Line

Profit factor is a useful measurement to evaluate the profitability of a trading system.

Despite this it has its drawbacks as it does not consider the length of drawdowns and can oversimplify small samples.

It is best used in combination with other performance metrics to rightly judge and assess the viability of any trading strategy.

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