> ## Documentation Index
> Fetch the complete documentation index at: https://kalpi.ai/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# Profit Factor

> Measure the structural profitability of a strategy by comparing gross gains against gross losses.

**Profit Factor** is one of the most reliable metrics for evaluating the raw efficiency of a trading system or portfolio strategy. It strips away complex compounding mathematics to answer a fundamental question: *For every single rupee this strategy lost, how many did it bring in?*

## The Formula

The calculation isolates your absolute upside versus your absolute downside over a specific testing window:

$\text{Profit Factor} = \frac{\text{Gross Profit}}{\text{Gross Loss}}$

## Evaluating Your Score

Unlike total return metrics, which can be skewed by a single massive winner, the Profit Factor gives you a clear look at your strategy's structural consistency.

| Profit Factor Range | Classification           | Tactical Reality                                                                                            |
| :------------------ | :----------------------- | :---------------------------------------------------------------------------------------------------------- |
| **Below 1.0**       | Unprofitable             | The strategy is losing capital. The cost of losing trades completely eclipses all gains.                    |
| **1.0 to 1.49**     | Moderately Profitable    | The system breaks even or makes a small profit, but is highly vulnerable to transaction costs and slippage. |
| **1.5 to 2.0**      | Strongly Profitable      | The institutional sweet spot. The strategy generates robust alpha with a healthy margin of safety.          |
| **Above 2.0**       | Exceptionally Profitable | Highly efficient system. Note: Double-check for overfitting or lookahead bias if backtesting smooth data.   |

<Note>
  **Strategic Rule:** A strategy with a Profit Factor of 1.75 means that if your losing trades collectively lost ₹1,00,000, your winning trades pulled in ₹1,75,000 over the exact same period.
</Note>