Sharpe Ratio
The Sharpe ratio measures risk-adjusted return — how much return you get per unit of risk taken. Higher is better. It is calculated by dividing excess return (return above risk-free rate) by the standard deviation of returns.
Formula
Why it matters for traders
Sharpe ratio allows you to compare two strategies with different risk levels on an equal basis. A strategy making 30% returns with massive drawdowns may have a lower Sharpe ratio than a strategy making 20% with small, consistent gains.
How Tradapt tracks this
Tradapt calculates your strategy's consistency and volatility of returns. While full Sharpe ratio requires daily returns data, the consistency and volatility metrics in Tradapt serve a similar purpose for evaluating edge quality.
Track this free in TradaptFrequently asked questions
What is a good Sharpe ratio for trading?
A Sharpe ratio above 1.0 is generally considered acceptable. Above 2.0 is good. Above 3.0 is excellent. Professional funds typically target Sharpe ratios of 1.5–2.5.