How to Calculate Win Rate, Sharpe Ratio, and Sortino

Win Rate

Win rate (also called win percentage or batting average) is the most intuitive trading metric. It measures the proportion of your trades that are profitable.

Worked Example

You take 80 trades in a month. 44 are winners and 36 are losers.

What Is a Good Win Rate?

This is the most common beginner question, and the answer is: it depends entirely on your reward-to-risk ratio. A scalper with a 3:1 reward-to-risk only needs a 25% win rate to break even. A mean reversion trader with a 0.5:1 reward-to-risk needs a 67% win rate.

Trading Style	Typical Win Rate	Required R:R
Trend Following	30-40%	2:1 or higher
Swing Trading	45-55%	1.5:1 to 2:1
Day Trading	50-60%	1:1 to 1.5:1
Scalping	60-75%	0.5:1 to 1:1

The Win Rate Trap

Beginners often optimize for win rate because it feels good to win frequently. But a 90% win rate with tiny gains and occasional catastrophic losses is a losing strategy. Always evaluate win rate alongside average win size and average loss size. This is exactly what profit factor captures.

Sharpe Ratio

The Sharpe ratio, developed by Nobel laureate William Sharpe, measures the excess return you earn per unit of risk. It is the most widely used risk-adjusted return metric in finance and allows you to compare strategies that have different return and risk profiles on a level playing field. For a deeper exploration of Sharpe ratio benchmarks and practical interpretation, see our dedicated Sharpe ratio guide.

Step-by-Step Calculation

Suppose you are calculating a monthly Sharpe ratio from daily trading returns:

• Step 1: Calculate your daily returns (percentage change in account value each day)
• Step 2: Calculate the average daily return. Example: 0.15% per day
• Step 3: Subtract the daily risk-free rate. If the annual risk-free rate is 5%, the daily rate is approximately 0.014%. So excess return = 0.15% - 0.014% = 0.136%
• Step 4: Calculate the standard deviation of your daily returns. Example: 0.8%
• Step 5: Divide: 0.136% / 0.8% = 0.17 (daily Sharpe)

Annualizing the Sharpe Ratio

To convert a daily Sharpe to an annualized Sharpe, multiply by the square root of the number of trading days per year (typically 252):

Interpreting the Sharpe Ratio

Sharpe Ratio	Rating	Interpretation
Below 0	Losing	Returns are below the risk-free rate. You would be better off in bonds.
0 - 0.5	Poor	Risk-adjusted returns are minimal.
0.5 - 1.0	Acceptable	Reasonable for most retail strategies.
1.0 - 2.0	Good	Strong risk-adjusted performance.
Above 2.0	Excellent	Elite performance. Typical of top-tier quantitative strategies.

Sortino Ratio: Why It Is Better Than Sharpe for Traders

The Sortino ratio is a modification of the Sharpe ratio that only considers downside deviation instead of total standard deviation. This distinction is crucial for traders.

Why Sortino Matters More for Traders

The Sharpe ratio penalizes all volatility equally, including upside volatility. But as a trader, you do not mind large positive returns -- you want them. A day where you make 5% instead of your average 0.5% is not "risk" in any meaningful sense. Yet the Sharpe ratio treats it as risk because it increases the standard deviation of your returns.

The Sortino ratio fixes this by only measuring downside deviation. If two strategies have the same Sharpe ratio but different Sortino ratios, the one with the higher Sortino is generating its volatility from large wins rather than large losses -- which is exactly what you want.

Calculating Downside Deviation

Downside deviation is calculated like standard deviation, but you only include returns that fall below your target return (usually zero or the risk-free rate):

• Step 1: Identify all daily returns below your target (e.g., all negative returns)
• Step 2: Square each of those negative returns
• Step 3: Average the squared negative returns (divide by total number of periods, not just negative ones)
• Step 4: Take the square root

This gives you a measure of volatility that only captures the "bad" kind of risk.

Interpreting Sortino

A Sortino ratio of 2.0 or higher is generally considered excellent for active traders. Because Sortino only penalizes downside risk, it will always be equal to or higher than the corresponding Sharpe ratio. A large gap between Sharpe and Sortino indicates that most of your volatility comes from upside moves, which is a positive sign.

Quick Calculator Examples

Here are three realistic trader profiles to show how these metrics work in practice:

Scalper (High Win Rate, Small R:R)

• 200 trades, 140 winners (70% win rate)
• Average win: $50, average loss: $80
• Profit factor: ($50 x 140) / ($80 x 60) = $7,000 / $4,800 = 1.46
• Net P&L: +$2,200

Swing Trader (Moderate Win Rate, Decent R:R)

• 50 trades, 26 winners (52% win rate)
• Average win: $400, average loss: $250
• Profit factor: ($400 x 26) / ($250 x 24) = $10,400 / $6,000 = 1.73
• Net P&L: +$4,400

Trend Follower (Low Win Rate, High R:R)

• 40 trades, 14 winners (35% win rate)
• Average win: $1,200, average loss: $350
• Profit factor: ($1,200 x 14) / ($350 x 26) = $16,800 / $9,100 = 1.85
• Net P&L: +$7,700

Notice how the trend follower has the lowest win rate but the highest net profit and profit factor. Win rate alone would have flagged this strategy as the weakest, which is why you need multiple metrics.

How TradeGladiator Automates These Calculations

You do not need to calculate any of these metrics manually. TradeGladiator computes them automatically from your trade log:

• Win rate, profit factor, and expectancy calculated in real time as you log trades
• Sharpe and Sortino ratios computed from your daily equity curve, automatically annualized
• All metrics filterable by strategy, instrument, time period, and session
• Historical trend charts showing how each metric evolves over time
• Max drawdown tracked alongside these metrics for complete risk profiling
• 20+ analytics metrics available on every plan, including the free tier

Stop calculating in spreadsheets. Create a free TradeGladiator account and get every metric computed for you automatically.