The short version. Profit factor = gross profit ÷ gross loss: a unitless efficiency ratio, above 1.0 means profitable. Expectancy = the average result per trade in dollars (or in R): what you can expect the next trade to add. Profit factor tells you how efficient your edge is; expectancy tells you how much it pays per trade. Win rate — how often you're right — decides neither on its own.
These three numbers get quoted interchangeably, and they are not interchangeable. A trader can have a 70% win rate and lose money, a profit factor of 1.4 and take home more than a friend at 1.8, and a healthy-looking expectancy that is really one lucky trade in disguise. The confusion is not about the arithmetic — each formula is simple. It is about which question each number actually answers. This page lines them up so you can stop reaching for the wrong one.
Which number answers which question
| Your question | The number that answers it | Why |
|---|---|---|
| Am I profitable at all? | Profit factor > 1.0, or expectancy > 0 | Both cross their threshold at the same moment — they always agree on the sign. |
| What is one more trade worth? | Expectancy (per trade) | It's an average dollar (or R) result, so it scales with how many trades you take. |
| How efficiently do I turn losses into wins? | Profit factor | A pure ratio of dollars won to dollars lost — no trade count, no account size. |
| Can I compare two accounts of different size? | Profit factor, or expectancy in R | Both are unitless; dollar expectancy is not comparable across position sizes. |
| Is this strategy worth trading a lot? | Expectancy × trade frequency | A tiny edge taken often can beat a large edge taken rarely. |
| How often am I right? | Win rate — and nothing more | Says nothing about size; a 30% win rate can be very profitable. |
For the plain definitions and formulas of each — plus breakeven win rate, payoff ratio, and drawdown — see the trading metrics glossary. This page is about choosing between them.
Profit factor: the efficiency ratio
Profit factor is total won ÷ total lost across all your trades. Make $6,000 on your winners and lose $4,000 on your losers, and your profit factor is 1.5 — for every dollar you lost, you won a dollar fifty. Above 1.0 is profitable, around 1.5 is solid, 2.0 is strong.
Its strength is that it is unitless. A profit factor of 1.5 means the same thing on a $2,000 account and a $2,000,000 one, which makes it a clean way to compare two periods or two strategies. Its weakness is the flip side of the same coin: because it collapses everything into a ratio, it hides how many trades produced it and how lumpy they were. One enormous winner can carry a profit factor that the other 49 trades would never support. And it is undefined when you have no losing trades — dividing by zero — which is why a journal that reports a profit factor of "999.99" for a flawless record is showing you a placeholder, not a measurement. Treat a very high profit factor over a small sample as a warning that the sample is too small, not as proof of genius.
Expectancy: the per-trade amount
Expectancy folds win rate and trade size into one number — the average you can expect to make or lose per trade:
Expectancy = (win rate × average win) − (loss rate × average loss)
A 40% win rate, a $300 average win, and a $150 average loss gives (0.40 × $300) − (0.60 × $150) = +$30 per trade. That is the number that decides everything downstream: multiply by how many trades you take and you get the expected result of the strategy over time. Positive expectancy is a trading edge — the longer read is what is a trading edge.
Expectancy's one catch is units. Quoted in dollars, it is tied to your position size: +$30 per trade means something different when you're risking $500 a trade than when you're risking $50, and it can't tell you whether your edge itself is improving if your size is drifting. The fix traders reach for is expectancy in R — the same formula with wins and losses measured in units of risk instead of dollars, so +0.2R per trade is comparable across any size. Plan the R on a trade before you take it with the risk/reward calculator.
They always agree on the sign — and only on the sign
Here is the point most explanations miss: profit factor and expectancy are two views of the same underlying edge, so they can never disagree about whether you're profitable. Profit factor crosses 1.0 at exactly the moment expectancy crosses zero — both are just different ways of comparing total wins to total losses. If one says you made money, so does the other.
What they disagree about is the question. Two traders can both run a profit factor of 1.5 and have completely different expectancies — one grinding a hundred small trades a week, the other taking six large ones a month. The ratio is identical; the per-trade amount, and the amount the strategy makes over a year, is not. Profit factor tells you the edge is real and efficient. Expectancy tells you what that edge is actually worth to you, trade by trade. You need both, and you need to know which is which.
Where win rate fits (and where it traps you)
Win rate is the most-quoted and least-useful of the three on its own. It is only how often you close green, and it says nothing about size. A 30% win rate with wins four times the size of losses is highly profitable; a 65% win rate with losses twice the size of wins bleeds out. Chasing win rate in isolation is the surest way to talk yourself into cutting winners early and holding losers — the disposition effect — which drags down average win, inflates average loss, and quietly craters both your profit factor and your expectancy while the win rate still looks fine.
The caveat under all three: sample size
Every number here is an estimate, and a handful of trades cannot support a confident one. Profit factor is the most fragile — one outlier moves it hard — but expectancy and win rate are noisy on small samples too. Under about 30 trades, almost any of these figures can look like an edge that isn't there. This is the difference between a metric and a measurement: a measurement carries the number of trades behind it. A profit factor of 2.4 over 12 trades and a profit factor of 1.4 over 400 are not remotely the same claim, and quoting either without its sample size is a guess wearing a decimal point. For how many trades it takes before these stabilize, see how many trades before patterns emerge.
This is also why Kyra's engine never reports one of these numbers bare. It attaches a sample size and an uncertainty range to every figure, tests each pattern against chance before showing it, and tiers each claim by how much evidence stands behind it — so an early, thin result is never dressed up as a settled one.
Educational only. Not financial or trading advice. Formulas are standard definitions; the worked examples use illustrative figures, not performance data.
