Your journal shows a number called profit factor. Yours says one point three. Is that good? Bad? What is it even measuring?
It is simpler than it looks. It is a comparison of two piles of money.
What does profit factor mean?
Put all your winning trades in one pile and add up what they made. Put all your losing trades in another pile and add up what they cost. Profit factor is how many times bigger the first pile is than the second.
Here is a small example. Your winners this month made six hundred euros. Your losers cost four hundred. Six hundred is one and a half times four hundred. So your profit factor is one and a half.
How do you read the number?
Above one: your winners made more than your losers cost. You came out ahead.
Exactly one: both piles were the same size. You broke even, before costs.
Below one: your losers cost more than your winners made. You lost money.
The further above one, the more cushion you have. A profit factor of two means your winners made twice what your losers cost. A profit factor of one point one means you are only just ahead, and a few small costs could push you under.
What is a good profit factor?
There is no official line. Many traders and journal makers treat anything comfortably above one as a working start, and around one and a half or higher as solid. Very high numbers, like four or five, are rare over many trades. When you see one, check first how many trades are behind it.
Compare yourself with yourself, and leave the screenshots online alone. A steady profit factor over a long run of trades says more than a high one over a short run.
What does it look like in a real journal?
Tom is the trader in EdgeFlow's demo. His example journal averages +0.02R per trade, so its profit factor sits only just above one. Looks like a flat journal.
Inside it, the demo finds one combination of his confluences. Those 63 trades average +0.53R per trade, which puts that group's profit factor far higher than the journal's. The single number for the whole journal hid it. This is example data, and it describes Tom only.
How is it different from win rate?
Win rate counts how often you won. Profit factor counts how much.
You can win most of your trades and have a profit factor below one, if a few big losses outweigh many small wins. You can win only a third of your trades and have a profit factor above one, if your wins are much bigger than your losses. Profit factor already includes how often and how much, which is why many traders find it more useful than win rate alone. What is expectancy in trading? covers the other number that does the same job in a different way.
How is it different from expectancy?
Both tell you whether you came out ahead. They answer slightly different questions.
Profit factor answers: how big were my wins compared to my losses, in total?
Expectancy answers: what was one trade worth to me, on average?
Expectancy is often measured in R. R is your result in units of risk. Win twice what you risked and that trade is two R. Expectancy in R tells you something you can plan with: on average, each trade earned this much of what I risk. Profit factor is a good quick check. Expectancy is easier to use when you decide on size and risk.
Where can profit factor fool you?
With few trades. Five trades with four winners can give a huge profit factor. Five trades tell you almost nothing. How many trades you need before you can trust a setup explains why.
With one huge winner. One lucky trade can lift the whole number. Take it out and look again. If the profit factor falls below one without it, your results lean on a trade that may not come again.
With no losers. If you have no losing trades yet, there is nothing to compare your wins with, so the number cannot be worked out yet.
With trades left out. If you only log the trades you are proud of, the losing pile is too small and the number looks better than reality.
How do you use it in your own journal?
Look at it for all your trades first, as a health check. Then look at it for each kind of trade you take. A setup with a profit factor well below one is dragging the rest down. A setup with a high one over many trades is worth looking at more closely.
Always read it with the number of trades next to it. A profit factor without a trade count is half a fact.
Quick answers
What does a profit factor of one mean?
Your winners made exactly what your losers cost. You broke even before costs, and slightly lost after them.
Is a profit factor of two good?
Yes, if it holds over many trades. It means your winners made twice what your losers cost.
Can profit factor be negative?
No. Both piles are counted as positive amounts, so the lowest it can go is zero, which means you had no winners at all.
Should I use profit factor or expectancy?
Both. Profit factor is a quick check of the whole picture. Expectancy tells you what an average trade is worth, which helps with planning.
Read next:
EdgeFlow shows your profit factor next to your win rate and your average result per trade, with the number of trades behind each. If your profit factor sits near one and you cannot see what to change, read stuck at break-even.