What is Profit Factor?
Profit Factor: Profit factor is the ratio of gross profit to gross loss over a set of trades. A profit factor above 1.0 means the trading strategy is profitable.
Full Definition
Profit factor = Gross Profit ÷ Gross Loss. A profit factor of 1.5 means that for every ₹1 lost, the strategy makes ₹1.50 — generating a 50% return net of losses. A profit factor of 1.0 means breakeven (before costs). Most professional traders aim for a profit factor of 1.5 to 2.5. Below 1.0 means the strategy is losing money overall.
Impact on Your Trading
Profit factor is one of the most important metrics in a trading journal because it captures both win rate and R:R in a single number. It quickly tells you whether a setup or strategy has a genuine edge.
For Indian Traders
For F&O traders, brokerage and taxes (STT, GST, exchange charges) can significantly impact profit factor. Track net profit factor (after all charges) to get a true picture of your edge on NSE trades.
How to track this in your journal
Calculate profit factor separately for different time periods (morning vs afternoon), days of the week, and market conditions. You may discover your edge disappears on certain days or during certain market phases.
Frequently Asked Questions
What profit factor should I aim for?▼
A profit factor above 1.5 indicates a solid edge. Below 1.25, the edge may not be strong enough to survive drawdowns. Below 1.0, the strategy is losing money. If your journal shows a profit factor below 1.0, stop trading that setup and analyze what's going wrong.
Track Profit Factor in your journal
Use Trade Prom to monitor how profit factor affects your trading results.
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