What is a good Sharpe ratio for day trading? (Honest answer, with thresholds)
Sharpe ratio compares your returns to your volatility. For day trading, the thresholds are different than for buy-and-hold investing. Here's what's realistic, what's elite, what's probably a sample-size artifact — and why a per-trade Sharpe is a different number from a per-day one.
Sharpe ratio is the standard risk-adjusted return metric. The simple version: Sharpe = (average return - risk-free rate) / standard deviation of returns. The higher, the better — you're getting more return per unit of volatility you took on.
What "good" means depends entirely on the time frame and the strategy. Day traders see different Sharpe numbers than buy-and-hold investors. Here's the honest breakdown for active day trading.
Sharpe ratio for day trading vs investing
Buy-and-hold investing literature talks about Sharpe ratios in the 0.3-0.7 range as normal. S&P 500 long-term Sharpe is roughly 0.4. Warren Buffett's lifetime Sharpe is about 0.8. Hedge fund "good" is 1.0.
Day trading is different because you're not compounding through volatility the same way. Your daily P&L distribution has lower volatility than a buy-and-hold portfolio's daily mark-to-market because you flatten at the end of each day. As a result, day traders see higher Sharpe ratios — sometimes much higher.
Threshold values for day trading (measured per DAY)
One thing to fix in your head before reading the table: these thresholds are for a Sharpe computed on daily P&L. A Sharpe computed per trade is a different, smaller number, and the two are not interchangeable — see "How TradeFlow Quantum computes it" below, because the figure in the app is the per-trade one.
- Below 0.5: marginal. Your day-to-day P&L is too volatile relative to your average. Either size down, reduce position count, or tighten your stop discipline.
- 0.5 to 1.0: profitable but inconsistent. You make money on average, but Friday's win can be wiped by Monday's loss. Most retail day traders sit here.
- 1.0 to 2.0: solid risk-adjusted edge. Your good days outsize your bad days enough that volatility doesn't kill you.
- 2.0 to 3.0: excellent. Top tier of consistently profitable retail day traders.
- 3.0 to 4.0: rare. Verify with 100+ trading days. Often a sample-size effect that collapses to 1.8 once you have more data.
- Above 4.0: skeptical. You're either gaming the math (taking 1 trade a day with a tight stop) or you have a real anomaly. Don't blow up your account leveraging based on this number.
How to compute it on your own data
If you have daily P&L for the last 60+ trading days, you can compute Sharpe directly:
- Compute the mean of your daily P&L (over the window).
- Compute the standard deviation of your daily P&L (over the same window).
- Sharpe (daily) = mean / standard deviation. Note: the risk-free-rate adjustment is usually negligible at this time scale; you can skip it.
- To annualize: multiply daily Sharpe by sqrt(252) — about 15.87. So a daily Sharpe of 0.1 annualizes to 1.59.
Common mistakes
- Comparing a per-trade Sharpe to the per-day thresholds above. Every number in this post is measured on daily P&L. A ratio measured per TRADE is a different quantity and is roughly your daily figure divided by the square root of your trades per day — so a per-trade 0.4 and a daily 1.2 can describe the same trader taking nine trades a day. Neither is wrong; mixing them is. Always check which one you are looking at before you judge it.
- Ignoring sample size. A 3.5 Sharpe over 20 days is meaningless. The 95% confidence interval is roughly ±1.5 with that few samples.
- Comparing to investor thresholds. Day-trading Sharpe should always be discussed in day-trading context, not investing context.
How TradeFlow Quantum computes it
TFQ reports a PER-TRADE Sharpe, and labels it that way on screen: the mean of your R-multiples divided by their standard deviation, with no annualisation factor and no periodicity assumption. It appears on /analytics/risk and /analytics/equity, in the two-slice comparison on /analytics/compare, and in replay — not on the dashboard. There is no window setting and no rolling 30/60/90 series; it is computed over whatever slice you have filtered to.
Two consequences worth internalising. First, it only sees trades that carry an R-multiple — a trade logged without a stop contributes to your P&L but not to this number, and the risk page says so beside the tile. Second, because it is per-trade, the threshold table earlier in this post does not apply to it: a healthy per-trade figure for an active day trader sits well below 1.0, and reading 0.4 there does not mean you are in the "marginal" band. Use it to compare two of your own slices — one setup against another, this month against last — rather than against a number you read somewhere else.