What is meant by sharpe ratio? what does sharpe ratio=0 indicate?

Algos, strategies, code
2

Sharpe ratio measures how much risk your trading system takes to get the rewards. Exact calculation is complicated. Higher the sharp ratio the better it is. Sharpe ratio of above 1 is considered good, above 2 is very good, above 3 is excellent. Sharpe ratio is negative when trading system gives negative returns.

Note that higher Sharpe ratio doesn’t mean the maximum profits but it means a less volatile trading system , and the magnitude of drawdowns will be lesser in this system.

Sharpe ration of 0 means some incorrect calculation.

3

But when i back tested several strategies they were in profit instead of sharpe ratio being zero…what does that show then?

4

I am not getting your question. Sharpe ratio of 0 means the backtesting program like PI is not calculating the Sharpe ratio correctly. I have seen PI does not calculate max drawdown also properly , most of the time it will say 0, even risk reward ratio does not seem to be calculated properly in PI. If you use Amibroker these values are calculated properly.