Are you a Marksman Trader? Use Sharpe ratio to know
A marksman is a person who is skilled in shooting at a mark with great precision. They are trained hard to shoot at a target at various distances under variable environmental conditions with deadly accuracy. They are consistent shooters.
Likewise, in trading, you can see for yourself if you are a precision trader. You would use a Sharpe ratio.
Most traders fail to use this performance metric to their advantage. The main reason is that when anyone “google” for an explanation would only find a vague mathematical jargon, but not so much into how the trader can use it to improve one’s trading skills.
The formula is:
Rp = the mean return
Rf = the risk-free rate of return (interests or swaps)
σp = standard deviation, a measure of spread or dispersion
In simple language, Sharpe ratio in trading tells you how precisely or consistently you are trading. The higher Sharpe Ratio value, the higher precision.
There is no perfect or absolute number to shoot for, but Sharpe ratio is best used to compare between trading systems or strategies.
Higher Sharpe ratio values indicate the trading returns are clustered around the mean, just like the shots landing close to the target or the bull’s eye. While, a lower value tells your shots are more spread out.
Here are examples of two trading systems having similar gains or returns. But their Sharpe ratios are significantly different.
The chart above is my own system, Genesis Asset Monitor, which has a relatively higher Sharpe ratio of 0.98.
While, the next chart is from another system, having Sharpe ratio of just 0.02.
You can instantly tell the higher Sharpe ratio chart (System A) has trade returns packed closely around the mean compared to the loosely dispersed and with more negative-return trades of a lower Sharpe ratio system (System B).
So, what you do next? As you find the Sharpe Ratio is relatively low, hence a lower trading precision, your next lesson is to “aim” more closely to the target, in this case, your mean return (either as a percentage or amount).
Find out why some of the trades were closed far away from the average.
Tackle the outliers. Revisit some of these trades and see if those trades can be prevented by improving your stop-loss level or if the trades could be completely prevented beforehand by adding a trade filter. Try to learn what caused the outliers and eliminate as much as you can. As your next trades have fewer outliers, then your strategy’s returns are more consistent and the Sharpe ratio improves.
Genesis Asset Monitor
Copy trade system at Signalstart
The key advantage of copy service is not having to spend countless hours each day to find trades and manage them.
This forex strategy has already recorded over 200% returns in 2017. It is again projected to repeat this performance in 2018!
Also, you have a top trader and fund manager, Ramesh, who has a vested interest in your success too, since he has his funds invested in his Genesis system. There is no need to purchase any expensive trading software or attend a seminar to learn about new strategies which usually would not come with any track record of its success.
Track record is paramount. Genesis Asset Monitor has a solid record. When we purchase a new car, we do ask about its quality of build and performance. Then, why in trading, you have to trust or believe a software or system without any verified proof? Genesis copy system is changing that.
About the author
Ramesh is the author of 3 trading and strategy building books “Trade Smart with 10/20/30 Rule™” , Making Big on CAD/CHF Forecast in 2018, and “Trade Forex with Confidence” which are available on Amazon. He created 10/20/30 Rule™ for traders to build and test their next money making trading strategy fast.