System Quality Number (SQN)
A metric developed by Dr. Van Tharp to evaluate the 'quality' of a trading system by balancing expectancy with volatility.
Formula
More Details
Detailed Analysis: System Quality Number (SQN)
The System Quality Number (SQN), developed by Dr. Van Tharp, is designed to measure the relationship between your trading expectancy (average profit) and the consistency (standard deviation) of your results. It essentially rewards systems that are profitable and stable, while penalizing systems that are profitable but wild/volatile.
Why SQN Matters
A high SQN indicates that your system produces a smooth equity curve. This is crucial for Position Sizing.
* High SQN (> 3.0): Suggests a very stable system. You can safely trade larger position sizes because the risk of a deep drawdown is statistically low.
* Low SQN (< 1.5): Suggests a volatile or barely profitable system. You must trade smaller sizes to survive the inevitable swings.
Scoring Scale
- 1.6 - 1.9: Below Average (Hard to trade).
- 2.0 - 2.5: Average.
- 2.5 - 2.9: Good.
- 3.0 - 5.0: Excellent.
- 5.0 - 7.0: Superb.
- > 7.0: Holy Grail (Likely curve-fitted or insufficient data).
TradesViz Implementation
TradesViz automatically calculates SQN for your overall account and for filtered views, helping you determine the 'tradeability' of different strategies.
Where to find it in TradesViz
Example
With Expectancy of 0.5R, Std Dev of 1.2, and 100 Trades, your SQN is 4.16