Why These 3 Metrics Matter
Win Rate alone tells you almost nothing about whether a system is profitable. These 3 metrics give you the complete picture of a system's quality.
1. Profit Factor
Definition: Total Gross Profit ÷ Total Gross Loss
Formula: PF = Σ(Winning trades) ÷ Σ(Losing trades)
Interpretation:
- PF < 1.0 → Losing system
- PF 1.0–1.5 → Marginal system, needs improvement
- PF 1.5–2.5 → Good system, tradeable
- PF > 2.5 → Excellent system (TheXauBot Standard EA: 2.726)
2. Expectancy
Definition: Average amount earned per dollar risked across all trades
Formula: E = (Win Rate × Avg Win) − (Loss Rate × Avg Loss)
E = (0.40 × $300) − (0.60 × $100) = $120 − $60 = +$60 per trade
Positive expectancy means the system makes money over a large sample of trades. This is the foundation of profitable trading.
3. Recovery Factor
Definition: Net Profit ÷ Maximum Drawdown
Formula: RF = Net Profit ÷ Max Drawdown
The Recovery Factor tells you how efficiently the system earns profit relative to its worst drawdown. A RF of 5.0 means the system earned $5 for every $1 it drew down — excellent.
How to Use These Together
When evaluating any EA or strategy, look for:
- Profit Factor > 1.5
- Positive Expectancy
- Recovery Factor > 3
- At least 200+ trades in the sample (small samples are unreliable)
