Sharpe ratio
Volume Profile Analysis glossary · Volume Profile Technicals
Definition
The excess return (over risk-free rate) per unit of return standard deviation; a standard risk-adjusted performance metric, typically annualized.
Sharpe ratio in plain English
The Sharpe ratio answers one honest question: was the extra money you earned worth the wild ride you took to get it? It compares your return above what you'd get from a totally safe place (like government bonds) to how bumpy your returns were — so a smooth 8% beats a stomach-churning 8%. Think of two roads to the same town: same arrival time, but one is a calm highway and the other is full of hairpin turns — the calm road has the better Sharpe ratio. Higher means more reward per unit of nerve-wracking uncertainty.
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