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Sharpe ratio

The Sharpe ratio is the mean of your daily results divided by their standard deviation. It does not say how much you make, it says how much your days resemble one another. Two traders with the same annual return have different Sharpes if one got there steadily and the other in three huge days.

The formula

Mean ÷ standard deviation of your daily results (non-annualized, FTMO / MetaStats convention).

How to read it

The consistency of your performance. Higher = steadier gains. Unreliable over few days.

It is the statistic prop firms and capital allocators look at, because steadiness is what lets you size a risk. On a personal journal it mainly serves to spot drift: a Sharpe falling while return holds means you are taking more risk for the same result.

The classic mistake

Reading it over a few weeks. Over twenty trading days, standard deviation is so unstable an estimate that the ratio moves by half on one single day. It only means something beyond several months, and it is computed here non-annualized, on the FTMO and MetaStats convention.

To go deeper on this : read the full guide. Every term is gathered in the glossary.