You are running two strategies at the same time. The backtest shows both have a profit factor of 1.8. Does that mean you can just pick either one and move on?
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A same profit factor does not mean the strategies are equally good. Think of two students who get the same total score on a college entrance exam. One gets a perfect score in math but fails English. The other is balanced across all subjects. Which one do you think is more reliable? Today I will show you three dimensions to break the tie.
Dimension 1: Maximum Drawdown and Drawdown Duration
[What to do]: Check how much each strategy lost and how long the losses lasted during its worst period. Profit factor only looks at the total result. It ignores the painful experience you went through along the way.
[How to do it]: Look for "Maximum Drawdown" and "Drawdown Duration" in your backtest report or trading log.
Case A (using professional tools): Tools like TradingView show these two numbers directly.
Case B (manual calculation): Open your equity curve. Find the section from the highest peak to the lowest trough. Check how much it dropped in percentage terms and how many days it took to recover.
Real example: A trend-following strategy and a mean-reversion strategy can have the same profit factor. Trend strategies usually have deeper drawdowns, but they recover quickly once a trend appears. Mean-reversion strategies have shallower drawdowns, but they may stay underwater for a long time when volatility remains high, sometimes taking one or two months to recover. Which experience can you tolerate? That is up to you.
[Completion standard]: You have two numbers in hand — the maximum drawdown and drawdown duration for Strategy A, and the same data for Strategy B.
Dimension 2: Sharpe Ratio and Sortino Ratio
[What to do]: Check how efficiently each strategy makes money — how much return you get for each unit of risk taken. Profit factor tells you whether the strategy made money. These two ratios tell you whether the return was worth the risk.
[How to do it]: Find these two numbers in your report or backtest results.
Sharpe Ratio: Measures return efficiency relative to total risk, including both upside and downside volatility. Higher is better. A value above 1 is generally considered decent.
Sortino Ratio: Only measures downside risk, meaning volatility from losses. It is stricter than the Sharpe ratio. For strategies that make small profits regularly but occasionally suffer big losses, the Sortino ratio will be noticeably lower than the Sharpe ratio. It helps expose hidden weaknesses.
When two strategies have the same profit factor, the one with the higher Sortino ratio usually has milder losses and fewer extreme risks.
[Completion standard]: Calculate or look up the Sharpe and Sortino ratios for both strategies and compare which one is higher.
Risk warning: A strategy with a profit factor of 1.8 but a 30% maximum drawdown versus one with a profit factor of 1.5 but only a 10% drawdown — which would you choose? When drawdown gets too large, your position size may be forcibly reduced, and the compounding effect takes a direct hit. Do not let profit factor hold your position management hostage.
Dimension 3: Trading Frequency and Cost Sensitivity
[What to do]: Check how many trades each strategy made and how sensitive those trades are to commissions and slippage.
[How to do it]: Count the total number of trades for both strategies over the same time period.
If one strategy trades very frequently, such as opening and closing positions several times a day, the backtested profit factor of 1.8 may drop to 1.2 after deducting commissions and slippage. The market simply does not have enough liquidity to absorb that many orders.
The other strategy trades less frequently. Costs have less impact, so its net profit factor may remain high.
Once you factor in costs, you will see which profit factor is actually achievable in real trading.
[Completion standard]: Add commissions and slippage back into the calculation and recalculate the "net profit factor." Compare which strategy drops less.
FAQ
Q: What if all metrics for both strategies are roughly the same? A: Use statistical significance tests to see whether the differences are just random. If the sample size is large enough, run a paired t-test or a permutation test to confirm whether the difference is statistically significant. If the sample size is too small, such as fewer than 30 trades, the difference between the two strategies may just be luck. Do not rush to allocate heavy capital to either one.
Q: I only know the profit factor is the same. I did not record other metrics. What should I do? A: Next time you trade, add two columns to your log: "drawdown monitoring" and "trading frequency." Run the strategies for one month first and gather enough data before comparing. If the sample size is still too small right now, do not choose based on gut feeling. Keep collecting trade records.
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Next Step
Pull out the backtest reports or trading records for your two strategies. Go through the three dimensions above. Write down the "maximum drawdown," "Sortino ratio," and "total number of trades" next to each strategy.
If one strategy clearly has a smaller drawdown, a higher Sortino ratio, and a lower trading frequency, that is your winner.
If you still cannot tell them apart, it means you need to collect at least 30 live trades and let the data speak for itself.
