A lot of books/articles/trading forums mention that "profit factor" is probably the most important measure and should be used to compare different trading strategies. They define profit factor as total gains/total loss. I can understand having a profit factor > 1 means the trading system is making money but I think you can't use this number for comparing trading strategies. Trading system with higher profit factor doesn't necessarily make more money than one with lower profit factor. For example if we have two trading strategies A and B as below,
Trading strategy A: Has a profit factor of 2
Trade 1: Buy XYZ @ 100 on Monday and sell it @ 150 on Tuesday making a profit of $50.
Trade 2: Buy ABC @ 100 on Wednesday and sell it @ 75 on Thursday for a loss of $25
Profit factor = $\frac{\\\$50}{\\\$25} = 2$
Rate of return for this strategy = $25\%$
Trading strategy B: Has a profit factor of 3
Trade 1: Buy XYZ @ 100 on Monday and sell it @ 109 on Tuesday making a profit of $9.
Trade 2: Buy ABC @ 100 on Wednesday and sell it @ 97 on Thursday for a loss of $3
Profit factor = $\frac{\\\$9}{\\\$3} = 3$
Rate of return for this strategy = 6%
Isn't the trading strategy "A" better than "B"? What am I missing here?