the only confusion on sharpe ratio happens in the tradestation reports. everywhere else it seems to be quite clear. SR = (annualised return - risk free rate)/annualised standard deviation of returns mod SR = annualised return / annualised standard deviation of returns "return" can be daily, weekly or monthly changes. i would recommend using daily, since they show the picture clearer with shorter time frames. nevertheless when you calc sharpe on ten years of data, your sharpe derived out of daily or monthly data will show very similar results. which is not the case with just one year if data, since you cut out some vola with the monthly observations. for the following i use the excel terminology. i hope i don't make a typo ... you annualise daily returns by "=POWER(1+avgReturn; 256) -1", monthly returns by "=POWER(1+avgReturn; 12) -1". that assumes that you calculate your returns as a percentage, like: (NAV(t0) - NAV(t-1))/NAV(t-1). if you calculate your returns as log-returns, like "LN(NAV(to)/NAV(t-1))" then you have to annualise by "avg return x 256" for daily data and "avg return x 12" for monthly. annualising standard deviation is done by "STABW(hereYouHaveToFillInTheColumnWhereYourReturnsAre)*SQRT(256)" for daily data and the same with "...SQRT(12)" for monthly. now, since sharpe ratio only looks at daily results, it does not care if you achieve them with high hit ratio and low payoff or vice versa. and think about your personal utility function. sharpe is probably much more similar to it than any other figure. which is the reason why i use it.