What Makes a Good Trade?

Most people judge traders by their raw returns. "They made 50% last year!" But that number alone is meaningless without understanding the risk taken to achieve it.

Example: - Trader A: 50% return, but had a 40% drawdown along the way. They nearly lost half their portfolio before recovering. - Trader B: 20% return, with only a 5% max drawdown. Steady, consistent growth.

Which is better? Trader B is almost certainly the more skilled trader. Their risk-adjusted returns (return per unit of risk) are far superior.

On Deepmint, we measure this with the Sharpe Ratio: average return divided by its volatility. Higher is better.