What is Profit Factor?
Profit Factor is the ratio of gross profit to gross loss. A profit factor of 2.0 means the system earned $2 for every $1 lost. It is one of the most important metrics for evaluating trading system performance.
Interpreting Profit Factor
Below 1.0: losing system. 1.0-1.5: marginal system. 1.5-2.0: good system. Above 2.0: excellent system. However, very high profit factors (above 5) on small sample sizes may indicate curve fitting.
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