What is Sharpe Ratio?
Sharpe ratio measures how much return you earned for each unit of overall volatility. Higher values generally mean smoother growth relative to swings — on a long enough sample.
Formula
Sharpe ≈ (Portfolio return − Risk-free rate) ÷ Standard deviation of returns
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how Sharpe Ratio shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Nifty sleeve monthly returns over 12 months with stdev 4% and avg return 1.2% → Sharpe useful for comparing vs fixed income alternatives.
Reliance Industries perspective
Reliance-only book Sharpe often looks worse than diversified Nifty sleeve due to single-name variance at ₹1,300 concentration.
| Sample length | Sharpe usefulness | Prefer instead |
|---|---|---|
| < 30 daily returns | Low | Expectancy, win rate, profit factor |
| 3–6 months weekly | Moderate | Pair with max drawdown |
| 12+ months monthly | Higher | Compare strategies with similar risk |
How to validate
- Minimum sample: 30 closed trades on one strategy tag before trusting Sharpe Ratio.
- Check for one outlier week inflating Sharpe Ratio — export largest winners and losers.
- Recompute Sharpe Ratio after including brokerage, STT, and slippage on F&O tags.
- Compare Sharpe Ratio on the same date range as profit factor and max drawdown.
How to track in TradeLyser
- Open Strategy Board or analytics → filter by strategy tag and review period.
- Locate the widget or column reporting Sharpe Ratio (or export trades to compute manually).
- Store snapshot values in weekly review: Sharpe Ratio, profit factor, drawdown, trade count.
- If Sharpe Ratio is custom, add a spreadsheet column fed from TradeLyser CSV export.
Best practices
- Publish Sharpe Ratio per strategy, not only at account level.
- Use the same calculation window (weekly vs monthly) year-round.
- Pair Sharpe Ratio with sample size in every review slide or note.
- Document formula used so mentors interpret the same number.
Common pitfalls
- Changing rules after fewer than 20 trades because Sharpe Ratio moved slightly.
- Mixing intraday and positional tags when computing Sharpe Ratio.
- Ignoring costs so Sharpe Ratio looks better than banked P&L.
- Letting one outlier trade dominate the Sharpe Ratio reading.
How to use this in TradeLyser
Export period returns from P&L analytics before calculating Sharpe externally. Use the same return frequency (daily vs weekly) when comparing two strategy tags.
Reference guide
| Context | Value | Reading |
|---|---|---|
| Usage | Monthly on 6+ months of returns | Daily Sharpe on 15 trades |
Related terms
Maximum drawdown records the worst fall from a prior equity high to the subsequent low. It describes pain and capital required to stay in the game — not just the final P&L.
Sortino ratio rewards return per unit of harmful volatility — moves below a target return — ignoring upside swings traders generally welcome.
Volatility quantifies variability — in prices (historical/realised) or in option premiums (implied). Higher volatility means wider expected swings over a horizon.
By trader level
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FAQ
Do Indian traders need Sharpe on daily or monthly returns?
Monthly is common for swing books; daily for active intraday. Be consistent.
Is higher Sharpe always better?
Not if the sample is short or returns are not normally distributed. Pair with max drawdown.
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