Profit Factor OR Expected Payoff...Which is more important??

When evaluating a trading system which do you think is better...

A higher PROFIT FACTOR or
A higher EXPECTED PAYOFF

There has been much discussion about expected payoff but one thing I know is that with the same trading system, by simply pyramiding position size increments one can dramatically increase the expected payoff with a minimal impact on the profit factor.

Does anyone pay more attention to the profit factor instead and why is that more important to you or less important to you?

From an system evaluation point of view they are both equally useless, as neither takes the sample size into consideration.

It was just a general question. I once read in one of the newer turtle books that a sample size of 33 becomes relevant, but anything less is random.

In my testing, the number of trades for any given timeframe i.e. month to month or year to year or 6 month periods has always been more than that.

For example with two systems I am evaluating one has generated 75 trades in half a year and the other has generated upwards of 230 to 330 trades in a year depending on parameters, so I am statistically relevant.

With that in mind. I was merely trying to get some input as to what other traders evaluate and why as it relates to PROFIT FACTOR in testing.

Of course the bottom line is the $$ you take from the market and in your pocket from your system and of course the EXPECTED PAYOFF is also a reflection of that, but just was looking to get some dialogue going as it relates to using PROFIT FACTOR as one of the parameters in evaluating a trading system...

For example let's say you have two sets of results on the same market...

1. PF of 1.38 and EP of 250 and net profit of $83,000 with a 61% Max and/or Relative DD for the last 6 months, and a choppy equity curve.

2. PF of 1.65 and EP of 175 and net profit of $64,000 with a 42% Max and/or Relative DD, for the last 6 months, and a smoother equity curve.

Both generated 114 trades, and the same percentage of winners.

Which system would you allocate more money to or continue to allocate more money to for the next 6 months.

Thoughts? Anyone?

I'd always look to minimize the drawdown rather than to maximize the profits.

If I understand your definition of profit factor (win size divided by loss size?), then maximizing profit factor could decrease your win rate (all else equal), thus causing your expectancy to remain about the same.

Maximize expectancy, because this is what will matter over time.

Best,

Kris Matthews

how do you calculate expected payoff?