Understanding Profit Factor in Trading

In trading, Profit Factor measures the ratio of total profits to total losses. It helps assess a strategy's profitability:

• 1.0 → Break-even (profit equals loss)
• 2.0 → Strong (profits are twice the losses)
• 3.0 → Very strong (profits are three times the losses)
• 4.0+ → Excellent (highly profitable but may indicate fewer trading opportunities)

A higher Profit Factor indicates better performance, but an excessively high value might suggest limited trading opportunities or overfitting.