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, so the strategy made $1.50 for every $1 it lost.