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-- MJ wrote:
> All those other ratios (Semideviation, RRR, Sterling)
> are alternative ways to quantify "Reward per unit
> Risk" for those who don't like the Sharpe Ratio.
> One such person is Jack Schwager and he discusses AT
> LENGTH his reasons for not liking Sharpe, and for
> liking these others, in his book "Managed Trading:
> Myths and Truths".
Mr. Schwager covers this topic in his "Complete Guide to The Futures Markets" also.
To summarize, the problems with the Sharpe ratio are:
1.) It does not distinguish between intermittent and consecutive losses.
2.) The calculation depends (heavily!) on the time interval length chosen for measuring returns (weekly, biweekly, monthly,...)
3.) It does not distinguish between positive and negative fluctuations in returns (!) (All volatility is considered to be bad.)
4.) It does not distinguish between retracements in unrealized profits versus retracements from trade entry equity.
The Sharpe ratio really is a very, very poor performance measure for traders.
"It is wonderous that with so little wisdom, the world is ruled in high places."
The Omega Man
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