Joseph Samuel P291 Martin#87

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What is profit factor in trading strategies?

Profit factor is a performance metric that compares gross profits to gross losses. A profit factor above 1.0 indicates a profitable system, while below 1.0 means losses exceed gains. For example, a profit factor of 1.5 means the system earns $1.50 for every $1 lost. Higher profit factors suggest more efficient systems, though extremely high values may signal overfitting. Combined with expectancy and drawdown analysis, profit factor helps traders assess the viability of their strategies before applying them to live accounts.