Sharpe Ratio

The Sharpe Ratio measures the realized return in comparison to the risk taken. However, the Sharpe Ratio has a crucial limitation because it penalizes traders for large winners and large losses alike.

The formula we use is: (Sum return of all trades) / (Standard deviation of all returns)

The problem with the Sharpe Ratio is that it reduces the Sharpe Ratio when a trader has large winning trades. Better alternatives to the Sharpe Ratio are the Sortino Ratio and the Gain to Pain ratio.