sharpe ratio

[stevenmac22]

A Sharpe ratio of 2.0 and above is excellent.
Not many hedge funds can do that, only the likes of Rentec Medallion can do it at scale.

A ratio somewhere between 1.0 and 2.0 is probably more realistic for automated trading.

If you are below 1.0, you might as well just buy and hold the SP500 or NDX.

If you develop systems you have to be careful not to curve fit. Very easy to fall in to the trap of combining multiple systems together that have amazing Sharpe ratios on back data but are no where near as good in real world trading.

Thank you for sharing the additional information on the ranges and thresholds, especially what is realistic and not pie in the sky. While I do use backtesting, I have the system actively trade in a paper trading account that uses production Live Paper trading management rules to know how it would really perform by taking trades in the current market environment to eliminate the cherry picking.

There is always a reason that you see the guru selling their system has data from 2020 and 2021 but not the current running environment. It is great that it performed that well then, but HOW is it performing now in the last month in these most recent current market conditions? Very few want to show the details of that.

Thanks for your insight on all of this. I have some of the data for the Sharpe ratio, but I need to get a few more data points in order to derive it.

Have a good day,
MAC

 

[winnertakesall]

Sharpe ratio of 2+ was easier before when interest was 2%. Now that interest rate is 5%, it would be much harder. Having said that, backtest result often don't translate into reality. Do a forward test.

 

[murray t turtle]

Consider this system: Win rate 50%, winner size: 2, loser size 1.

On average how many trades a month do you need to take or find with such a system to get a sharpe ratio of 3.0 over the long run?
Answer: just 7 trades per month, or about 80 per year.
So why dont more people have sharpies of 3?

For automating trading, 50% win rate with that win/loss ratio (2:1) is hard to find, your win/loss ratio is going to be closer to 40% than 50%. And that will lower your sharpie from 3.0 down to 1.2! To get it back up to 3.0 you would need to find 500 trades per year not just 80.

For manual trading where it might be more possible if you have a good feel for the market you trade, but most people cant emotionally handle losing 50% of the time.

%%
NO wonder\ too many markets can get way past 50%= sharpe was designed for long only stock funds measure ;
+ have to figure in electric bill bid\ask + or REALTORs comission.
Some turtle$ made some much with low %/ i would look for some other stuff also.
.22 long rifle . 38-.357makes a good can opener/ even though not designed for that;
30-06/180 grain is overkill for cans LOLSame with 777 pellets in 12 gauge shotgun

 

[metalztrader]

Personally, I think the Sortino Ratio is stupid. T or MAR is just subjective nonsense. Return minus a nonsensical subjective value divided by downside volatility that is also sensitive to this subjective value doesn't tell you anything.

More so though, positive volatility needs to be scaled also like in the sharpe. Otherwise, when comparing streams of returns there will be a huge bias towards streams with large winners. At that point, why even bother with Sortino Ratio and just go with the biggest R. Not scaling the upside volatility because everyone obviously wants big winning trades misses the point entirely.

The Sharp Ratio is an excellent ratio. But I think the Sortino Ratio is the better ratio.
The reason is that the Sharp Ratio measures volatility in relation to profit. But even the sharp increase in the portfolio is considered high volatility and then gives worse Sharpratios than slowly increasing portfolios.
The Sortino Ratio measures only the volatility of drawdowns and is therefore the better metric for evaluating the performance relative to the drawdown of a portfolio.

The same problem arises with the standard deviation and the Ulcer Index.