Journaling & Metrics • Simulated Paper Trading

Expected Shortfall CVaR Calculator for Paper Trading

Quantitative Framework, Technical Execution Rules, and Diagnostic Journaling

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Executive Definition & Core Answer

Risk-adjusted return ratios—including the Sharpe Ratio, Sortino Ratio, Calmar Ratio, and System Quality Number (SQN)—quantify the excess return generated by a trading system per unit of volatility or downside risk. In paper trading evaluation, these metrics distinguish between genuine institutional alpha and reckless leverage that masks catastrophic tail risk.

This analysis is part of the SlateTick paper trading platform and trade execution journal, designed to calibrate execution discipline, risk modeling, and multi-asset simulation across Equities, Forex, and Crypto without risking live capital.
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Quantitative Risk-Adjusted Performance Evaluation

Step-by-step institutional rules and quantitative procedure

1 Excess Return Calculation

Subtract the risk-simulated cash hurdle rate (e.g. 4.5% annual baseline) from total annualized trading returns.

2 Standard Deviation Volatility Sizing

Measure total return dispersion (annualized standard deviation) across closed trade sequences.

3 Downside Semivariance Isolation (Sortino)

Penalize only harmful negative volatility while ignoring upward profit spikes.

4 Peak Drawdown Ratio (Calmar)

Divide annualized return by maximum peak-to-trough drawdown to evaluate capital efficiency.

5 System Quality Number (SQN)

Calculate SQN = [Average Trade Return / Standard Deviation] * Sqrt(N) to score overall strategy quality.

Sharpe & Sortino Ratio Computation ($100k Account)

Precise formula and quantitative position-sizing model

Formulation & Proof $100k Virtual Capital Sizing
Annualized Simulated Return: +24.6% ($24,600 profit on $100,000 balance). Risk-Simulated Hurdle Rate: 4.5%. Annualized Return Volatility (Standard Deviation): 10.2%. Downside Deviation: 5.1%. Sharpe Ratio Calculation: (24.6% - 4.5%) / 10.2% = 1.97 (Institutional Grade). Sortino Ratio Calculation: (24.6% - 4.5%) / 5.1% = 3.94 (Exceptional Downside Protection). System Quality Number (SQN) across 80 trades: 3.42 (Classified as 'Excellent System').

By calculating position size strictly based on the distance between your entry price and technical invalidation level, your risk remains fixed at 1.0R ($1,000) regardless of the asset's nominal price. To simulate and log your orders under real-world spread and slippage dynamics, explore the core paper trading simulation workspace.

Execution & Journaling Checklist

Mandatory trade management and discipline verifications

✓
Target a minimum Sharpe Ratio of 1.50 across simulated trade journals.
✓
Prioritize Sortino Ratio over Sharpe to avoid penalizing positive upside volatility.
✓
Review risk-adjusted metrics after every 50 trades to detect strategy degradation.
✓
Benchmark simulated risk ratios against SPY baseline performance.
Topical Pillar Resource

Connect this specialized calculation back to the master SlateTick paper trading platform and trade journal to aggregate all 400 execution playbooks, journal logs, and multi-asset live simulations in one centralized dashboard.

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Frequently Asked Questions

Essential inquiries on execution, verification, and journal analytics

Q1: What is the difference between Sharpe and Sortino ratio?

The Sharpe ratio penalizes both upside and downside volatility equally, whereas the Sortino ratio only penalizes downside losses, making it far more diagnostic for active trading systems.

Q2: What is considered a good Sharpe Ratio in trading?

A Sharpe ratio between 1.5 and 2.0 is considered institutional grade; ratios above 3.0 over long samples are rare and reflect elite risk management.

Q3: How does System Quality Number (SQN) measure strategy edge?

Developed by Van Tharp, SQN scores how easily a trading system can be traded; an SQN between 2.0 and 3.0 is good, while 3.0 to 5.0 is institutional quality.

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Launch Terminal Paper Trading Journal

Expected Shortfall CVaR Calculator for Paper Trading

Risk-adjusted return ratios—including the Sharpe Ratio, Sortino Ratio, Calmar Ratio, and System Quality Number (SQN)—quantify the excess return generated by a trading system per unit of volatility or downside risk. In paper trading evaluation, these metrics distinguish between genuine institutional alpha and reckless leverage that masks catastrophic tail risk.

Annualized Simulated Return: +24.6% ($24,600 profit on $100,000 balance). Risk-Simulated Hurdle Rate: 4.5%. Annualized Return Volatility (Standard Deviation): 10.2%. Downside Deviation: 5.1%. Sharpe Ratio Calculation: (24.6% - 4.5%) / 10.2% = 1.97 (Institutional Grade). Sortino Ratio Calculation: (24.6% - 4.5%) / 5.1% = 3.94 (Exceptional Downside Protection). System Quality Number (SQN) across 80 trades: 3.42 (Classified as 'Excellent System').