Sharpe Ratio — what it is and how to use it in trading
Definition
The Sharpe ratio is a risk-adjusted return metric: the ratio of a strategy's average excess return to its volatility (standard deviation). The higher the value, the more return the strategy delivers per unit of risk taken.
How it works in the builder
In backtest statistics, Sharpe is computed from the series of trade or period returns. As a rule of thumb: above 1 is a good result, above 2 is excellent; below 1 means the strategy's risk may not be justified by its returns.
Typical use
Used to compare strategies or parameter sets against each other — a strategy with higher returns but much higher volatility can have a lower Sharpe than a calmer strategy with smaller returns.
Common pitfalls
Sharpe penalizes drawdowns and sharp profit spikes alike — two strategies with very different risk profiles can end up with similar Sharpe values. For strategies with rare, large losses, the Sortino ratio or max drawdown is more informative.
This block is available in the strategy builder
137 no-code blocks — build an entry condition with this term and test it on history
Historical results do not guarantee future ones. The service is an informational and analytical tool, not an individual investment recommendation; trades are not executed.