Profit factor
Profit factor is the total of a strategy’s winning trades divided by the total of its losing trades. Above 1 means it made money; the higher, the more efficient.
Profit factor is a single number that summarises how efficiently a strategy turns risk into reward. It is the sum of all winning trades divided by the sum of all losing trades. A profit factor of 1 means wins and losses exactly cancelled out. Above 1 means the strategy made money; below 1 means it lost.
What makes profit factor useful is that it captures the relationship between wins and losses, not just how often a strategy is right. A system can win less than half its trades and still have a strong profit factor if its wins are much larger than its losses, which is common in trend-following approaches. A profit factor around 2, for example, means the strategy earned twice as much on its winners as it gave back on its losers.
Crypto Wealth reports profit factor as part of its backtest because it describes quality, not just outcome. Combined with drawdown and win rate, it gives a fuller picture of how a strategy actually behaves.
