Win rate, risk/reward ratio and expectancy (all covered in our statistics guide) tell you whether a strategy makes money. They don't tell you how much you suffer while it does. The Ulcer Index, the Sortino ratio and the Calmar ratio measure exactly that: the psychological cost of sticking with a strategy, not just its final result.
Sortino ratio: only the volatility that hurts
The Sortino ratio compares your return against a target, then divides it only by the volatility of your negative returns. That's called "downside deviation." It completely ignores the ups and downs of your winning trades:
Sortino ratio = (Return − Target) / Downside deviation
It's a direct improvement on the better-known Sharpe ratio, which penalizes all volatility equally, including the swings from your best winning streaks. No trader really worries about those. Two strategies with the same Sharpe can have very different Sortino values if one's volatility comes from big winning trades and the other's from erratic losses.
Calmar ratio: return against your worst drop
Calmar ratio = Annualized return / Maximum drawdown
It compares how much you make in a year with the worst drop you had to sit through to get there. Drawdown is how far your account falls from a previous high. Two strategies with the same annual return can have very different Calmar ratios. One that made its money with a 10% maximum drawdown is far easier to stick with than one that needed a 40% drawdown to reach the same result.
Total return without the drawdown it took to get there is only half the story. The Calmar ratio puts both in a single number.
See plansUlcer Index: how deep and how long the pain lasts
Maximum drawdown (see also relative vs. absolute drawdown) only captures the single worst drop on your equity curve. The Ulcer Index goes further. It combines the depth of each drop with how long your curve stayed below its previous peak, not just the worst moment in isolation. Two strategies with the same 15% maximum drawdown can have very different Ulcer Index values if one recovered in two weeks and the other took six months.
The three metrics side by side
| Metric | What it measures | The question it answers |
|---|---|---|
| Sortino | Volatility of losses only | How predictable are my negative returns? |
| Calmar | Return against the worst drop | How much do I make for every point of drawdown I sit through? |
| Ulcer Index | Depth + duration of every drop | How much time do I spend "underwater" in total? |
Calculate these three metrics from the same journal that already holds your win rate and risk/reward. They don't need any extra data, just a different way of looking at the same results.
See plansWhen to use them in your own backtesting
They don't replace the step-by-step process or the basic metrics. Think of them as a tiebreaker. If you have two strategies with similar expectancy and need to choose which one to take live or into a prop firm challenge, the one with the better Sortino, Calmar and Ulcer Index is, for the same return, the easier one to stick with.
Frequently asked questions
- Do I always need to calculate all three metrics?
- Not for a first backtest. Win rate, risk/reward and maximum drawdown are still the place to start (see how to read your backtesting statistics). These three metrics become useful once you have several strategies with similar expectancy and need to choose between them.
- Which of the three is the most important?
- None of them on its own. Sortino is best for comparing how consistent your returns are, Calmar for comparing profit against your worst drawdown, and the Ulcer Index for capturing how long you spent 'underwater.' Each one answers a different question.
- Why is Sortino better than Sharpe for discretionary trading?
- Because the Sharpe ratio penalizes all volatility equally, including the swings from big wins, which no trader minds. Sortino only penalizes the volatility of losses, which is the risk that actually matters.
- Does a higher Calmar ratio always mean a better strategy?
- It means a better balance between profit and maximum drawdown, not necessarily a 'better' strategy in absolute terms. A strategy with lower total profit but a higher Calmar can be easier to stick with psychologically.
- Does the Ulcer Index replace maximum drawdown?
- No, it complements it. Maximum drawdown only measures the single worst drop. The Ulcer Index adds up the depth and the duration of every drop in the period, so two strategies with the same maximum drawdown can have very different Ulcer Index values.
- Does Trade & Repeat calculate these three metrics?
- Today it calculates win rate, risk/reward ratio, expectancy and drawdown from your journal. You can calculate Sortino, Calmar and the Ulcer Index by hand on that same data, using the formulas in this article.
Keep reading: How to read your backtesting statistics · Relative vs. absolute drawdown: why the same number can feel so different · How to backtest a forex strategy step by step
Educational content only; it is not financial advice. Trading financial markets involves the risk of losing capital.