The profit factor is the ratio of gross profits to gross losses: profit factor = total winnings ÷ total losses. It answers one question: for every dollar you lose, how many do you earn?
How to Read It
- Below 1.0 — the system loses money
- 1.0–1.3 — barely profitable; costs and slippage can wipe it out
- 1.3–1.7 — decent edge (most good trend systems live here)
- Above 2.0 — exceptional; often too good to be true without huge data
Why It Matters More Than Win Rate
Win rate alone is almost meaningless. A system that wins 90% of the time can lose money if its occasional losses are enormous. A system that wins only 30% of the time can be very profitable if its winners are big. The profit factor captures both sides in one number.
Example: a profit factor of 1.5 means you earn $1.50 for every $1.00 you lose. Over 100 trades with $10 average loss and $30 average win: 30 wins ($900) vs 70 losses ($700) → PF 1.29 — profitable despite losing 70% of the time.
Our Numbers
Our Nasdaq Trader backtest shows a profit factor of 1.5 on futures and 1.9 when the same signals are traded with options — with a lower drawdown (−11% vs −14%). That's a solid, realistic edge — and it's verified live on Collective2.
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