profit factor

asr: this post says profit factor of 3 is holy grail , it seems with our VP buying on medium UP side cross dips ( sell on medium Line Down side cross spikes )should give profit factor of 3 , so test these on our VP data of stocks, commodities . the testing is worth
- if PF is proven >3 we can employ this by scanning every day scans and we should get enough signals ti pick only quality ONES, since we have 100 instuments in VP.
- filter above dips/spikes based on the cross length as parameter ( like 15 , 20 , 25 days etc..). so the bigger the cross length the good the SPIKE/DIP is else it will be noise whipsaw.
- if we get the above dips/spikes once every 4 months that is 3 per year per instument then we are getting 3 x 100 instuments = 600 signals /year that is 200 trading days so 3 signals /day .
- between above dips/spike and Triple-EMA signls we should get 3 singals/day then we can choose one. usually these will last 5 days to close trade.
- or we can enter SELL Calls or Sell PUTs based on direction.
- or we can enter simultaneous SELL CALL/BUY PUT for net-zero cost

there is one that is of the utmost importance when evaluating a trading system. Our number one benchmark for constructing a sound, valid system is Profit Factor. In our view it is more important than percentage of winning trades or even total net profits.

Profit Factor is simply defined as gross profits divided by gross losses. That’s it in a nutshell, but sometimes the simplest things hold the most value. So let’s imagine your trading system’s gross profit for the past year was $40,000 and your gross losses were $20,000. Your Profit Factor would be 2. ($40k / $20k = 2). The formula is simply giving you a reading as to the difference between your system’s gains as opposed to its losses.

A Profit Factor above 2 is outstanding. Obviously, the larger the number is, the better. For example: a Profit Factor of 3 means your net gains were 3 times greater than your net losses, and anything above 3 is unheard of.

asr: profit factor 3 means => in order to win $3 you need to lose $1 => so your
profit factor 3 in % is => win / (win+loss ) * 100 => 3 / ( 3+ 1) x 100 => 75%
profit factor = 2 means => 2/ (2 +1 ) * 100 => 2/3 * 100 => 66%

Do you now see how important a component Profit Factor is when devising a valid trading system? This information can literally make or break a strategy and should always be considered before trading. Here’s an assignment for you: go back and research your current trading strategy and figure out its Profit Factor for the past year. You should shoot for a number above 1. The closer your number is to 2 the better, with anything above 2 being excellent.At the Swing Trading College, nearly every method we teach you has a 10+ year Profit Factor of above 3. Some of the systems we will give you have Profit Factor readings of 10 or higher when applied to stocks. Good luck and good trading.
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One of the primary statistics that I'm concerned with when looking at the results of a trading system backtest is the Profit Factor. The Profit Factor is computed as follows:

(PW * AW) / (PL * AL)
Where
PW = Probability of a trade being a winning trade = % of wins
AW = Average win size

PL = Probability of a trade being a losing trade = % of Losses
AL = Average loss size

asr: by adjusting 'stop loss' and 'proft target' parameters, we can change 'avaarege win size' AW and 'avarage loss size' AL so it will improve Profit factor.

Profit Factor basically describes the historic profitability of a series of trades. For example, a series of trades with a profit factor of 1.0 is break-even. Another more specific example might be a system that generates trades with a 50% chance of losing and a 50% chance of winning. For this system, the average win size is 3 times the size of the average loss. So:

PW = 0.5
AW = 3

PL = 0.5
AL = 1

And when we plug it into the formula, it looks like this:

(0.5 * 3) / (0.5 * 1) = 3

As long as the numbers remain the same in the future, we can expect this hypothetical system with a profit factor of 3 to be very profitable. In fact, the more frequently we trade it, the larger we would expect our compound returns to be. The reason for this can be simply explained by considering two casinos, each with a house edge of 55%. Obviously the higher volume casino will have larger earnings over an identical timeframe.

When backtesting a system, it would be useful to know what the best stoploss and profit target values are for that system

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Rating System
- have 2 rating systems , weekly and daily
factors: value weight total
equitty markets (S&P): 1 , 1 1
geo-political (nigeria) 1 , 1 1
currency factor ( euro) 1 , 1 1
OPEC factor 0 , 1 0 ( 0 x 1 )
EIA report data 1 , 2 2 ( 1x 2)
valuation (today price )-1 , 1 -1 ( this is bear factor coz price is high )
Rating number : +4-1 = +3

Have system rating 1-10 .
Update daily , no update it will take previuos day values. Once good you can ask JIM and other experts to input into it.
- have these values stored by date so that we can develop moving avg. and also a back test based on OIL price
- see power ratings for graph and ideas