Profit Factor

Profit factor compresses an entire strategy's economics into one number. A profit factor of 1.0 means the trader's winners exactly offset their losers (break-even before fees and commissions). A profit factor of 2.0 means winners are twice the size of losers in aggregate. Below 1.0 is a losing strategy; the open question is whether it would survive scaling.

Most experienced traders aim for a profit factor north of 1.5 over meaningful samples, and anything above 2.0 is considered strong. The metric is forgiving to win rate (a low-win-rate strategy with large winners can post a high profit factor) and unforgiving to outlier losses (one giant loss can drag a year's profit factor below 1.0). That asymmetry is informative on its own.

Profit factor pairs naturally with expectancy. Expectancy tells you the average dollar per trade; profit factor tells you the structural ratio. A strategy with positive expectancy and a profit factor of 1.1 is fragile; one with the same expectancy and a profit factor of 2.0 is robust to noise.