Profit Factor
Profit factor is closely related to expectancy but presents the same data in a different way. Where expectancy gives an average per trade, profit factor gives a ratio across all trades. Both are needed: a system with high expectancy on few trades may have a misleadingly favorable profit factor based on small samples.
Profit factor degrades quickly as transaction costs scale. A strategy with a profit factor of 1.8 in a no-cost backtest may drop to 1.2 when realistic fees and slippage are included, and to 0.95 (losing money) at high-frequency execution. Always compute profit factor net of costs.
Tracking profit factor across rolling 30-day windows reveals strategy drift. A profit factor that has steadily declined from 2.0 to 1.3 over six months is a strategy that needs review or retirement, even if it remains technically profitable.
How PerpLog uses Profit Factor
PerpLog's analytics dashboard displays profit factor per playbook, per session, and as a cumulative metric. Comparing profit factor across contexts highlights which playbooks deserve more capital and which should be retired.
Related reading
- Why Every Trader Needs a Trading Journal (And How to Keep One) — Blog
- Kelly Criterion for Crypto Trading: A Practical Approach — Blog
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