The formula
Profit factor = gross profits divided by gross losses. If winning trades produced $3,000 in total and losing trades lost $1,500, the profit factor is 2.0.
What a higher number means
Within the measured sample, a higher profit factor means gross profits exceeded gross losses by a larger multiple. But the number says little about how those losses were distributed or how large the account drawdowns became.
Sample size matters
A high profit factor across a handful of trades is much weaker evidence than a similar figure across a large and varied sample. Market regime and strategy type also matter.
Read metrics together
Combine profit factor with maximum drawdown, trade count, length of live history, average win and loss, exposure and fees. No single metric should carry the entire evaluation.