Profit factor and expectancy: how to tell if your strategy has an edge

Winning one week says nothing. What tells you whether a strategy works is whether, repeated many times, it wins more than it loses. Two numbers sum it up: profit factor and expectancy per trade.

Profit factor

Profit factor = total gains ÷ total losses. With $3,000 won and $2,000 lost, the profit factor is 1.5: for every dollar you lose, you make one and a half.

• Below 1: you're losing money.
• Between 1 and 1.3: you barely make money; costs and a couple of bad weeks can flip it.
• Between 1.3 and 2: a solid, realistic edge.
• Above 3 with few trades: suspicious; it's almost always luck or a sample that's too small.

Expectancy per trade (in R)

Expectancy tells you how much you make on average per trade, measured in R (multiples of what you risk):

Expectancy = win rate × average win − loss rate × average loss

Example: you win 40% of trades, your winners average 2.2R and your losers lose 1R. Expectancy = 0.4 × 2.2 − 0.6 × 1 = +0.28R per trade. Over 100 trades, about +28R: risking 1%, roughly 28% on the account (before compounding).

In that same example, the profit factor is (0.4 × 2.2) ÷ (0.6 × 1) ≈ 1.47.

How many trades you need

• With fewer than 30 trades, any number can be chance.
• From 50–100 trades of the same strategy, it starts to be reliable.
• Measure each setup separately: mixing one that wins with one that loses hides both.
• Look at max drawdown too: a positive expectancy with 20% drawdowns may not suit a prop firm.

Where to see it

Katanith calculates profit factor, expectancy and drawdown for your whole journal and for each strategy, session or emotion separately, so you find which part of your trading has an edge and which takes it away. See it with sample data in the demo, and if you're unsure how much to risk, read how much to risk per trade.