What Is a Good Sharpe Ratio for a Trading Strategy, and What Is Too Good?
Direct answer
Sharpe ratio benchmarks
Above about 1 is good for a whole strategy over several years, and a long-run figure above 2 or 3 deserves suspicion. The Sharpe ratio divides the return above the risk-free rate by the volatility of those returns. In his 1994 article the ratio's inventor gave a broad stock market example of a 6% excess return and 15% volatility: a Sharpe ratio of 0.40. On our calculation from January 2017 to November 2026, the S&P 500 had a Sharpe ratio of 0.61, the Nasdaq-100 0.77 and bitcoin 0.95, but with drawdowns of 34%, 36% and 84%. Single-year figures swing wildly: the S&P 500 scored 2.46 in 2017 and −0.89 in 2022, so a 12-month Sharpe above 3 says little.
- Sharpe = (return − risk-free rate) ÷ volatility of returns
- Classic example: stock market excess return 6%, volatility 15%, Sharpe 0.40
- S&P 500 2017–2026: 0.61 (18.3% volatility, −33.9% worst drawdown)
- Yearly S&P Sharpe ranged from 2.46 (2017) to −0.89 (2022)
- Short track records inflate Sharpe
- check drawdowns and sample length
Strategy sellers love the Sharpe ratio because one number sounds scientific. To judge it, you need to know what an ordinary market scores and how much the figure jumps around.
What people on X are asking
In April 2026 a trader posted that "The Sharpe ratio of my trading strategy for the last 12 months is above 3", alongside an 891% return. In June 2026 another account explained it as "Return ÷ Risk = Sharpe Ratio" and listed bands. And in August 2024 one post promised to "Beat 95% of traders" by buying bitcoin when its Sharpe ratio falls under −1 and selling above 2. Here are real benchmarks.
What people in the thread said
- @lo2cin4 replied that a one-year Sharpe ratio means nothing, and @NUMAresearchco that it reflects only the single path you happened to walk, not every outcome that could have happened. Both are fair: our S&P 500 yearly figures swing from 2.46 to −0.89.
- @tradervito found the reported Sortino ratio of about 12.8 almost unreal. Sortino uses only downside volatility, so it is always flattering when losses are rare; a figure that high over 12 months is a reason to ask for a longer record.
These are community comments, summarised in our words; the data and sources below come first.
The fact-checked answer
The definition. The ratio's 1994 article on Stanford's website defines it as the average differential return (strategy minus a benchmark, usually the risk-free rate) divided by the standard deviation of that differential return. It is "common practice to 'annualize'" returns measured over shorter periods. The article's own illustration: a stock market with a 6% excess return and 15% standard deviation has an annual Sharpe ratio of 0.40.
Real benchmarks. We calculated Sharpe ratios from daily closes, January 2017 to November 2026, using the average 3-month Treasury bill yield (2.58%) as the risk-free rate.
Sharpe ratios and drawdowns, Jan 2017 – Nov 2026 (our calculation)
FRED daily closes (SP500, NASDAQ100, CBBTCUSD, CBETHUSD); crypto annualised over 365 days. Sharpe uses the average (arithmetic) daily return, annualised, minus the 2.58% average T-bill yield. Gold uses World Bank monthly averages, which smooth volatility and flatter its Sharpe. Index figures exclude dividends. Tap a column header to sort.
| S&P 500 (price) | 12.8% | 18.3% | 0.61 | −33.9% |
| Nasdaq-100 (price) | 19.3% | 23.1% | 0.77 | −35.6% |
| Bitcoin | 55.1% | 68.2% | 0.95 | −83.8% |
| Ether | 75.8% | 91.1% | 1.05 | −94% |
| Gold (monthly averages) | – | – | 0.90 | – |
| Classic stock market example (1994 article) | 6% excess | 15% | 0.40 | – |
Notice that bitcoin and ether had higher Sharpe ratios than the S&P 500 yet lost 84% and 94% at their worst. The ratio treats volatility as risk; it says nothing directly about how deep the hole gets.
It swings a lot year to year. S&P 500 Sharpe ratio by calendar year: 2017 2.46; 2018 −0.46; 2019 1.93; 2020 0.58; 2021 2.02; 2022 −0.89; 2023 1.37; 2024 1.36; 2025 0.70. Simply holding an index fund produced a 12-month Sharpe above 2 in two of nine years.
UXS chart
Rolling 1-year Sharpe ratio, S&P 500 and Nasdaq-100 (no risk-free rate)
S&P 500, rolling 252-day Sharpe: latest
0.68
November 5, 2026
Nasdaq-100, rolling 252-day Sharpe: latest
0.32
November 5, 2026
Year by year: S&P 500, rolling 252-day Sharpe
Computed by UXS from the same data as the chart. Tap a column header to sort. * = year to date (latest data November 5, 2026).
| 2026* | 0.68 | -0.13 pts | 2.35 | 0.68 | 0.32 |
| 2025 | 0.81 | -1.02 pts | 1.98 | 0.15 | 0.79 |
| 2024 | 1.83 | -0.00 pts | 2.82 | 1.35 | 1.41 |
| 2023 | 1.83 | +2.62 pts | 1.83 | -0.66 | 2.60 |
| 2022 | -0.79 | -2.82 pts | 2.06 | -0.84 | -1.09 |
| 2021 | 2.03 | +1.44 pts | 2.72 | 0.60 | 1.53 |
| 2020 | 0.60 | -1.83 pts | 2.16 | -0.68 | 1.25 |
| 2019 | 2.43 | +2.78 pts | 2.43 | -0.32 | 2.10 |
| 2018 | -0.35 | -3.06 pts | 3.28 | -0.37 | 0.01 |
| 2017 | 2.70 | – | 2.88 | 2.40 | 2.60 |
Why short records mislead. The 1994 article notes that the t-statistic of the mean excess return equals the Sharpe ratio times the square root of the number of returns. With few observations, even a high Sharpe may not be statistically meaningful. One good year, a strategy tuned to past data (overfitting), or a strategy that sells options and has not hit its bad month yet can all show a Sharpe above 3.
Rough guide. These bands are common rules of thumb, not official standards: below 0 loses to cash; 0–0.5 is roughly market-like for a single asset; 0.5–1 is decent; above 1 over many years and markets is good; above 2–3 long-term is rare and calls for scrutiny of the data and method.
Quick poll
A strategy shows a 12-month Sharpe ratio of 3. What do you do?
What each answer means
- Invest: that is excellent: Careful: the S&P 500 itself scored above 2 in 2017 and 2021. One year is too short.
- Ask for a longer track record: Good: several years including a bad market tells you much more.
- Ask for the worst drawdown: Good: a high Sharpe can hide rare, very large losses.
- Ignore Sharpe entirely: It is still useful for comparing risk-adjusted returns, with its limits in mind.
Your answer is stored only in this browser (localStorage). UXS does not collect, count or publish votes, so no totals are shown.
Short track records make any ratio unreliable; see how many trades it takes to prove an edge.
Decision helper
| Claim | What to ask |
|---|---|
| Sharpe above 3 | Over how many years and trades? |
| Sharpe from a backtest | Out-of-sample results? Costs included? |
| Sharpe on crypto | 365- or 252-day annualisation? |
| Sharpe with low volatility | Any option selling or illiquid assets? |
For related risk maths, see what a good risk-reward ratio is, how much to risk per trade and how many losses in a row are normal at a 50% win rate.
Common mistakes
- Judging a strategy on one year's Sharpe.
- Comparing Sharpe ratios with different annualisation.
- Ignoring drawdowns and tail risk.
- Forgetting the risk-free rate when rates are high.
FAQ
What is a good Sharpe ratio?
Above about 1 over several years is generally considered good.
What is the S&P 500's Sharpe ratio?
About 0.61 from 2017 to 2026 on our calculation, but it varies widely by year.
Is a Sharpe ratio of 3 realistic?
For one year, yes, even for an index. Over many years it is rare.
How is the Sharpe ratio calculated?
Average excess return divided by the standard deviation of excess returns, usually annualised.
Why can a high Sharpe still be risky?
Volatility misses rare large losses, as crypto drawdowns show.
Does a negative Sharpe ratio mean losses?
It means returns were below the risk-free rate.
Sources
- Stanford University: The Sharpe Ratio (1994 article)
- FRED: S&P 500 (SP500)
- FRED: 3-month Treasury bill rate (DGS3MO)
- FRED: Nasdaq-100 index (NASDAQ100)
- FRED: Coinbase bitcoin price (CBBTCUSD)
Facts checked November 10, 2026. X posts are cited as evidence of the question, not of the answer.