Lucas Anthony_ Davis

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How does the Sortino Ratio differ from the Sharpe Ratio in forex evaluation?

The Sortino Ratio refines the Sharpe Ratio by penalizing only downside volatility, ignoring upside moves. For forex traders, this makes sense—sharp profits are not a problem, but sharp losses are. Institutions often prefer Sortino when assessing strategies with asymmetric returns. Retail traders can calculate Sortino to see if a system’s risk is coming from drawdowns. Benefits: clearer view of harmful volatility. Risks: requires accurate downside deviation data. A higher Sortino indicates a strategy that minimizes bad volatility while allowing gains. This metric highlights that not all volatility is equal—downside pain matters more than upside excitement.