Understanding Sharpe Ratio, Z-Score, and Other Advanced Metrics

Sharpe Ratio

Average return ÷ standard deviation of returns. The most common risk-adjusted measure of trading performance. Above 1.0 = solid; above 2.0 = institutional-grade.

Z-Score

A statistical test of whether your wins and losses are randomly distributed. A high absolute Z-Score means there's a pattern (consecutive wins or losses) you can exploit; a Z-Score near zero means returns are random.

AHPR (Arithmetic Holding Period Return)

The average per-trade return expressed as a percentage. Useful for comparing strategies regardless of trade count.

GHPR (Geometric Holding Period Return)

The compound average per-trade return. Always slightly lower than AHPR. Use it for projecting long-term equity-curve growth.

Expectancy

(Win rate × average win) − (loss rate × average loss). The single best summary of whether an edge exists. Positive = profitable system; negative = lose money over time.