Essential FX Metrics

Our core metrics include: Sharpe/Sortino ratios (risk-adjusted returns), maximum drawdown (peak-to-trough decline), profit factor (gross profit vs loss), win rate consistency, expectancy scores (average profit per trade), and strategy capacity (maximum executable size). These provide a comprehensive performance snapshot.

The Sortino ratio focuses only on downside volatility (losses), unlike Sharpe which penalizes upside volatility. This better reflects forex strategy risks since currency markets frequently experience asymmetric volatility - sharp declines followed by gradual recoveries. Sortino ratios above 2.0 indicate excellent risk-managed performance.

We compute expectancy as: (Win Rate % × Average Win) - (Loss Rate % × Average Loss). This quantifies expected profit per trade. Our analysis includes currency-pair specific expectancy, session-based expectancy (Asian vs London hours), and volatility-adjusted expectancy showing performance across market conditions.

Maximum drawdown measures the largest peak-to-trough equity decline, revealing: 1) Capital preservation capability, 2) Strategy vulnerability during volatility spikes, and 3) Psychological sustainability. We analyze drawdown duration, recovery speed, and frequency to assess robustness beyond the absolute number.

We calculate capacity using: 1) Liquidity absorption modeling at key levels, 2) Market impact simulations for large orders, 3) Slippage gradients by order size, and 4) Venue fragmentation analysis. This determines the maximum position size executable without significant performance degradation.

Win rate shows frequency of success while profit factor reveals magnitude quality: A 40% win rate with 2:1 risk-reward (Profit Factor >1.5) often outperforms 70% win rate with poor risk management. We analyze their relationship through scatter matrices showing optimal combinations for different currency pairs.