The Sharpe ratio measures return adjusted for risk. It compares a strategy’s return above a risk-free rate with how much its returns swing (volatility).
- A higher Sharpe ratio means more return for each unit of volatility.
- It is based on past performance and does not predict future results.
- Compare it together with drawdown and consistency, not on its own.
More detail: Investopedia: Sharpe ratio
Edited with AI from the original Tradetron article, checked against current docs (Oct 2026). Spot something wrong? Tell us in the Community.