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What is a Profit Factor in Trading?
The profit factor for a trader or trading system is determined by taking the gross profit of winning trades and dividing it by the gross losses from the trades that lost money for a chosen sample size. This formula considers the cost of slippage, fees, and any commissions paid. The profit factor can be defined for any period of time trading like monthly, quarterly, yearly or lifetime. The profit factor answers the question how much can I make or did I make for every dollar risked? A profit factor can be determined for both backtests and actual trading performance. This is a metric of trading performance that shows ... (full story)