SQN (system quality number)

The system quality number (SQN) is the square root of the number of trades multiplied by the mean trade result divided by the standard deviation of trade results. Proposed by Van Tharp, it scales a per-trade Sharpe by sample size so that a consistent edge on more trades scores higher than the same edge on fewer.

Senzoukria · Glossary · Updated September 2026

Formula and intent

SQN = √N × (mean trade result ÷ standard deviation of trade results), where N is the number of trades. The fraction is the per-trade Sharpe ratio; the square root of N converts it into a t-statistic-like quantity. Two systems with the same per-trade Sharpe differ in SQN if one produced four times as many trades: its SQN is twice as large.

The intent is to reward consistency across many trades rather than a high average on a few. Trade results are usually expressed in R so that position size and instrument do not distort the standard deviation.

Relationship to other measures

  • SQN is Sharpe per trade times √N. A high Sharpe on ten trades and a modest Sharpe on a thousand can give the same SQN.
  • Unlike expectancy, it is dimensionless once results are in R.
  • Unlike the profit factor, it uses every trade's deviation from the mean, so a few outliers raise the standard deviation and lower the score.
  • It is not corrected for the number of configurations tried; on the best of a sweep it is as optimistic as any other statistic.

In Senzoukria

The Replay performance panel reports SQN in its System quality section with the hint '√N × mean / standard deviation (Van Tharp). Accounts for the number of trades.' The panel also writes a short verdict from the trade count and the SQN, with wording for no edge, weak, average, solid and suspicious; the suspicious case is triggered when the figure is too good for the sample size and a handful of trades is carrying the result. When the SQN cannot be computed the verdict says to judge on the curve, not on a missing number.

In the backtest panel, SQN is one of the walk-forward objectives, described as 'quality, accounts for the number of trades', alongside expectancy per trade and Sharpe per trade.

Common mistakes

  • Comparing SQN across samples with very different trade counts without noting that √N is doing the work.
  • Computing it in dollars across instruments. Position size and tick value inflate the standard deviation.
  • Reading the desktop verdict labels as certifications. They describe this sample; the solid case is worded as the most a backtest can ever prove.
  • Optimising a sweep on SQN and then reporting the same SQN as evidence. Use the deflated Sharpe for that.

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Frequently asked questions

Why does SQN increase with the number of trades?
Because the formula multiplies the per-trade Sharpe by the square root of the trade count. The design assumption is that the same average and dispersion observed over more trades is stronger evidence of a real edge. That assumption breaks when the trades are not independent, for example many trades inside one session that share the same market regime.
What does the suspicious verdict in the Replay panel mean?
It appears when the SQN is high relative to the sample size, a pattern that usually means a few large trades dominate the result. The panel suggests checking the trade distribution below the summary. It is a prompt to inspect, not a judgement that the strategy is wrong.

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