What is Sharpe Ratio

Sharpe Ratio: Risk-Adjusted Returns

The Sharpe Ratio is a metric used to evaluate the quality of your trading strategy — not just how much you earn, but how much risk you take to earn it.

📊 Formula:

Sharpe Ratio = (Average Return − Risk-Free Rate) / Standard Deviation of Return

🧠 Why It Matters:

• Higher Sharpe = smoother, more stable returns

• Lower Sharpe = big swings, high volatility

🔼 How to Improve Sharpe Ratio:

• Focus on setups with high risk-to-reward (R:R)

• Cut losing trades quickly

• Reduce trade frequency and avoid noise

• Keep a trade journal to iterate and improve