WickCheck / Trading school / Sharpe ratio
Sharpe ratioAdvanced
Average return divided by the variability of returns: return per unit of risk.
What it means
A higher Sharpe means smoother returns. In trade-by-trade terms, average R divided by the standard deviation of R gives a similar idea.
How to spot it
- Above 1 is decent, above 2 is strong for most strategies.
Common mistakes
- Comparing Sharpe ratios computed on different time units.
Related terms
ExpectancyThe average result per trade, usually in R. Positive expectancy means the strate…Equity curveYour account balance plotted trade by trade.…DrawdownThe fall from an account's peak to its lowest point before a new peak. Max drawd…
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Education only, not financial advice. Definitions vary between teachers; these are ours, written for clarity.