Profit factor explained, and the four other numbers that matter

Profit factor

Profit factor is gross profit divided by gross loss. 1.0 is break-even. 1.5 means 1.50 earned for every 1.00 lost.

It is the cleanest single figure on a track record, because it survives position sizing. It does not care how large the account is.

• Below 1.0 — the strategy loses money, whatever the win rate says.
• 1.0 to 1.3 — thin. Fees and slippage can eat the whole margin.
• 1.3 to 2.0 — a plausible edge, if the record is long enough to trust.
• Above 3.0 on a short record — usually one outsized trade, or a loss the platform has not booked yet.

Win rate, and why it lies on its own

Win rate is the share of closed trades that finished positive. 80% sounds excellent and can still describe a losing account.

A trader who wins 8 times for 10 each and loses twice for 100 each has an 80% win rate and is down -140.

Always read win rate next to average win against average loss. Either number alone is decoration.

Maximum drawdown

The deepest peak-to-trough fall, written with a minus sign. It is the only metric that describes the experience rather than the outcome.

How to read a drawdown figure, and why yours will differ

Track record length

The multiplier on every other number. A brilliant 2-month record is a coin that landed the same way twice.

Ask one question of the record: has it lived through a month where its market went against it? If not, nothing above is tested.

ROI, read last

Headline ROI is what leaderboards sort by, so it is the number most exposed to being gamed by risk you cannot see.

A 240% year built on -60% drawdowns and 4 months of history is not a better result than 22% with -9%. It is a different bet.

Return is never wrong, it is just last. Read it after you know what the trader risked to get it.

The order to read them in

1. 1Track record length — decide whether the rest is evidence or noise.
2. 2Maximum drawdown — decide whether you could sit through it.
3. 3Profit factor — decide whether an edge is plausible.
4. 4Win rate with average win against average loss — decide whether the shape suits you.
5. 5ROI — last, and only in the context of the four above.