calculate sharpe ratio for intraday trading

Discussion in 'Risk Management' started by Mtrader, Mar 16, 2013.

  1. Mtrader



    i know how to calculate the sharpe ratio, but I have some practical questions:
    1 you need time periods: do i take 1 day as a period? Do i take all the trades within 1 day together, or take each trade seperately?
    2 do i annualize my return per trade and take the risk free return per year?

    If I take each trade seperately my sharpe ratio will probably have an extreme value because I have a very wide range of returns.
    If I have a trade with a 50% return it would give me a huge annualized return. So standard deviation will become huge too?
  2. dom993


    For Sharpe on intraday strategies, you need to take your results on a daily basis, ie. just take your daily P&L and compute Sharpe from that.
  3. Mtrader


    and riskfree rate of 5% a year should be divided by 252 (days)?
  4. Mtrader


    I found several different formulas.
    If I follow your instructions I have a sharpe ratio of 1.98.
    Depending on the used formulas I arrive between 1.98 and 2.45.

    So I suppose it will be between 2 and 2.5 sowhere.

    Thanks for your help.
  5. gmst



    I don't use any Rf for calculating sharpe of intraday strategy. I just make sure that I write clearly that Rf = 0 has been assumed while calc. this sharpe.

    Annualized daily Sharpe of 2-2.5 is good
  6. Mtrader


    I was disappointed with my sharpe ratio. Was expecting much higher figure. But I have no idea what the sharpe ratio is for very succesful funds. Would like to compare with them.
  7. gmst


    Not sure if individuals should compare their Sharpe with funds, since funds are moving huge size.

    As an individual, my annualized intraday Sharpe is 'most often' 3+ , calculated the way I described - 80% of my trading is thoroughly researched, all manual execution.

    When I say 'most often', it means - I regularly compute Sharpe over every 3 month rolling period - to give me a measure of how I am doing currently (as opposed to historically). So, on most of these rolling periods, I score 3+.

    It will be very interesting if other people also report their Sharpe. In the PL thread, some guys do report their Sharpe at year end from IB performance measurement tool and couple of guys had sharpe 4+ and 5+. AFAIK, IB calculates Sharpe in the exact same manner.

    There was a thread here where poster had sharpe 4+. Not really sure about his methodology though.
  8. Mtrader


    I think there is something wrong in my calculations. I calculated a sharpe ratio ( for a specific series of trades) of 1.39
    If I take the same data but reduce all profits above 1.000$ a trade by 75%, my sharpe ratio rises to over 2.25!

    So my drawdown did not change, only my profits went down drastically, but my sharpe ratio improved???????? All I did was cut my profits, so how can my share ratio improve with lower profits?
  9. southall


    Sharpe is well known to penalise upside volatility. There is something called the sortino ratio which was invented to get around this, but its not as widely used.

    I prefer using profit factor as a measure of risk vs reward.. i aim for a daily profit factor of at least 5.

    Much easier to visualise what profit factor is, sharpe is a bit abstract.
  10. Mtrader


    Can you please specify how the exact calculations should be done. My mothertongue is not english at all. So I want to be sure not to make mistakes again.

    Is it total profits divided by total losses?
    #10     Mar 18, 2013