Profit factor is the ratio of a strategy’s gross profit to its gross loss over a set of trades: total money won divided by total money lost. A profit factor above 1.0 means the strategy was profitable over that sample; below 1.0 means it lost money; exactly 1.0 is breakeven before costs.
It is a blunt but honest summary because it accounts for both sides of the ledger at once — frequency and size of wins against frequency and size of losses. A profit factor of 1.5 reads as “this strategy made $1.50 for every $1.00 it gave back.”
Like every performance ratio it is sample-dependent: one outlier win can prop up the number over 30 trades. Read it alongside trade count, expectancy, and maximum drawdown, and be suspicious of very high values on small samples — they usually shrink as the sample grows.
A backtest produces $6,000 of gross profit and $4,000 of gross loss: 6,000 ÷ 4,000 = 1.5 — the strategy made $1.50 for every $1 it lost.