Good Sortino Ratio? Calculate the Target and Downside First

A “good Sortino ratio” has no universal numerical cutoff for retail traders, prop firms or a trading style. Interpretation depends on the return series, target, downside convention, observation frequency and sample. Start by reproducing the number; a high historical value does not prove a future edge, funding eligibility or control of every loss.

Define the Target and Full Observation Set

Choose periodic returns after the stated charges and external-cash-flow adjustments. Specify account currency and valuation basis. A minimum acceptable return (MAR) belongs to that same period: a monthly target cannot be inserted unchanged into a daily calculation. Zero is a possible explicit target, not a universal forex or provider requirement.

Downside is a shortfall below the chosen target, so a positive 0.5% return can be a shortfall relative to a 1% target. It is not simply a list of losing trades. The CFA Institute’s Sortino discussion describes why target and calculation conventions must be disclosed.

Calculate Target Downside Deviation

d_i = min(periodic return_i − same-period MAR, 0)
downside deviation = sqrt(sum(d_i²) / N)
periodic Sortino = (mean periodic return − MAR) / downside deviation

This chosen discrete convention divides by all N included observations, including zero contributions from observations at or above target. It is not the standard deviation of the negative observations around their own mean. Dividing only by the number of shortfalls defines a different calculation. Keep absent data separate from a genuine observed zero return.

The Same Returns Can Produce Very Different Ratios

Take four hypothetical monthly after-cost returns: +1%, +2%, −1%, +3%. Their arithmetic mean is 1.25%. Keep all four observations and use the formula above, without annualisation.

The historical trades did not change. Target choice alone changed both numerator and shortfall denominator. Neither 2.5 nor 0.25 establishes a good/bad strategy or predicts a provider decision. These are independently checked synthetic calculations, not customer performance.

Handle Zero, Negative and Short-Sample Results

No observed shortfalls gives a zero denominator and no finite measured ratio under this convention. Do not convert that into proof that losses cannot occur. A negative numerator with positive deviation produces a negative ratio; it is performance below the stated target, which can occur even with positive absolute returns.

A short or selected window may omit loss events. There is no universal 12-month minimum or trade count that guarantees statistical validity. Record the available period, missing data and strategy changes, and retain later observations separately from the window used to select a strategy. Annualisation, if used, needs its assumptions and original periodic values.

Use Additional Metrics for Different Questions

Sortino is not maximum drawdown, recovery duration or a rule-enforcement measure. The order of returns can change drawdown while preserving a fixed-target Sortino. The Sortino/Calmar worked comparison demonstrates that distinction. A large ratio does not recover an earlier peak or establish a loss bound.

Compare only matching targets, frequency, costs, cash-flow treatment and observation basis. Separate account-currency P/L from percentage returns. For a portfolio, do not average account Sortino ratios: first construct a consistent, currency-converted, capital-weighted return series with aligned dates and cash flows, then calculate the chosen statistic. This is a calculation requirement, not a claim that MyVeridex automatically performs that reconstruction.

Keep Prop-Firm Terms and Strategy Changes Separate

No verified internal provider thresholds, trader success study or typical style-specific Sortino bands are established here. Read actual current terms for the selected product’s daily/overall loss definitions, reset time, prohibited activity and objectives. A historical ratio does not enforce those terms or promise a pass, payout or larger allocation.

Tighter stops, partial exits, percentage sizing and filters can change the entire return distribution. None guarantees a better Sortino without other consequences. Evaluate such changes on separate observations, with costs and execution assumptions, instead of treating a higher backtest ratio as proof. Stop orders and calculators do not cap every execution loss.

What MyVeridex Actually Calculates

The reviewed connection/scheduled-sync/statement recomputation uses reported closed-trade money P/L on dates with closed records. Sortino uses a zero threshold, squared negative P/L divided by all included such dates and √252 scaling. A five-date gate and zero fallback are product conventions. It is not an arbitrary user-selected percentage-return MAR calculation.

Days without closed trades do not appear in the series, and commission and swap are stored separately, so reconcile costs, deposits, withdrawals and changing capital before comparing ratios. MyVeridex connects MT4 and MT5 accounts directly and also imports supported MetaTrader statements.

A Useful Comparison Record

1. Save the full included series, currency, dates, cost/cash-flow treatment and valuation basis.
2. State MAR, its frequency, all-N or other denominator convention and any annualisation.
3. Preserve missing, zero-shortfall and negative-numerator cases explicitly.
4. Check drawdown and its duration separately, with source-data limitations.
5. Identify whether a product field is a cash-P/L proxy or the chosen percentage-return calculation.