Sharpe ratio >3 ? Seriously ?

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Viewing 9 posts - 1 through 9 (of 9 total)
  • #134659

    Hi Guys,

    I play with the new backtest results, but it’s strange, because on Backtest we can have Sharpe Ratio of more than 2 (Here 4.64 ! on 100 000 unit EUR/USD 1 mn, only on 40 trades and so on..)

    Remember that the best trading algo have a Sharpe ratio of 3, so I think a Sharpe ratio of more than 4 is impossible (I’m not stupid and I know we haven’t fin the graal, or the @Grahal 🙂 )

    What’s your Point of view ?

    Cheers

    #134662

    Low quantity of orders means not much data to average a significant ratio. With a high profitability strategy divided by a low standard deviation of gain, you obviously get a high Sharpe Ratio.

    #134674

    Sharpe ratio is on mean gain Nicolas, not total gain

    “…The Sharpe ratio reveals the average investment return, minus the risk-free rate of return, divided by the standard deviation of returns for the investment…”

    But agree with you on a small trades who makes interpretation difficult (That’s why there is a correction factor on SQN/Van Tharp notably ;,-) )

    Cheers

    #134720

    As you can see, with quite the same number of trade, we can have very good sharpe ratio even with a small gain (+34 % only)

    Have a nice day

    #134742

    Orders are grouped as a daily return:

    dailyReturn[day] = sum(perf)[day] / nb_trades[day]

    Then the Sharpe ratio is calculated:

    sharpe = (average(dailyReturns) – risk free interest rate between start and end of the report) / standard-deviation(dailyReturn)

    The risk free interest rate is automatically calculated by the software with a geometric interpolation.

    1 user thanked author for this post.
    #134747

    We are together agree, that’s derived/based on mean gain, that’s why even with a small total gain we can have a beautiful Sharpe ratio (Interest is may be for the “ego” 🙂

    Have a nice day Nicolas

    #135534

    FYI (very bad) results after some days even with a sharpe ratio of 4.64 ! (And remember 90 % winning trades, 6 win/loss and so on…EUR/USD 1 mn 100 000 units)

    Sharpe ratio don’t do all the job 😉

     

    #135555

    Nothing new if the sharpe ratio is calculated on bias and over-fitted results 🙂

    #135571

    It wasn’t overfit Nicolas (Only 2-3 parameters as usual), 100 000 units and so on

    It’s jut that Sharpe Ratio isn’t a standalone and need to be interpret with other indicators as we previous seen

    Have a nice day

Viewing 9 posts - 1 through 9 (of 9 total)

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