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What is Sortino ratio in forex trading?

The Sortino ratio is a variation of the Sharpe ratio that focuses only on downside volatility rather than overall volatility. It measures returns relative to risk of losses, making it more relevant for traders concerned about drawdowns. A higher Sortino ratio suggests better downside protection. For example, if a forex strategy earns 20% annually with limited downside volatility, it will score higher on the Sortino ratio than one with similar returns but larger losses. Traders use it to assess whether returns are achieved through stable performance rather than high-risk swings.