System Quality Number (SQN) is a performance metric using R Factor by Dr. Van Tharp

Team, please include this feature. This is very important feature to calculate whether our trading is system is winnable system or lossing. This gives insight to our approach.

you already have all the details required to calculate with you, like R factor.. all calculations are using R factor... also providing all the details and formulas if it helps.

Details:
The System Quality Number (SQN) is a performance metric developed by Dr. Van Tharp that measures the quality of a trading system by using

R-multiples (R factors). The formula is based on the relationship between the expectancy (mean R-multiple) and the standard deviation of all R-multiples for a series of trades, multiplied by the square root of the number of trades. 

Understanding R Factors 

An "R" (or R factor/R-multiple) represents a standardized unit of risk for a given trade. It is defined as the initial risk amount, which is the difference between your entry price and your stop-loss price. 

• 1R: The specific dollar amount you are willing to lose if a trade hits your stop-loss.

• R-multiple: The actual profit or loss of a trade divided by the initial 1R risk amount. A trade that gains twice the initial risk is a +2R winner, while a trade that loses the initial risk is a -1R loser. 

SQN Formula 

The SQN is calculated using the following formula: 

SQN=Expectancy (Average R-multiple)Standard Deviation of R-multiples×Number of Trades (N)cap S cap Q cap N equals the fraction with numerator Expectancy (Average R-multiple) and denominator Standard Deviation of R-multiples end-fraction cross the square root of Number of Trades (N) end-root

𝑆𝑄𝑁=Expectancy (Average R-multiple)Standard Deviation of R-multiples×Number of Trades (N)√

For systems with more than 100 trades, the number of trades (

Ncap N

𝑁

) is often capped at 100 in the formula to ensure the statistical significance of the sample size is appropriately represented. 

Step-by-Step Calculation Method 

1. Define your 1R risk amount for each trade: For every trade, determine the dollar amount you are willing to risk (entry price minus stop-loss price).

2. Record the actual R-multiple for each closed trade: Once a trade is finished, calculate the actual outcome in terms of R-multiples.

   • R-multiple = (Actual Profit or Loss in Dollars) / (Initial 1R Risk Amount).

3. Create a list of all R-multiples: Compile a list of all R-multiples from your trading system's history (e.g., [1, 0.5, -0.5, 5, -1, -1.2, 2, 0.2, ...]).

4. Calculate the average R-multiple (Expectancy): Sum all the R-multiples and divide by the total number of trades (

   

   Ncap N

   𝑁

   ).

   • Average R = Sum of all R-multiples / N. This value is the system's expectancy per trade.

5. Calculate the standard deviation of the R-multiples: Use standard statistical functions (like STDEV.S in Excel or sd() in R) to find the standard deviation of your list of R-multiples.

6. Apply the SQN formula: Plug the average R-multiple, its standard deviation, and the number of trades into the SQN formula provided above. 

Interpreting the SQN Score 

SQN values help rank trading systems: 

• Below 1.5: Poor system (difficult to trade)

• 1.5 - 2.0: Average system

• 2.0 - 5.0: Good system

• 5.0 - 7.0: Excellent system

• Above 7.0: "Holy Grail" (very rare and possibly a result of curve fitting) 

The SQN provides a single, powerful number to assess a strategy's profitability and consistency, which is more comprehensive than simply looking at win rates or total profit/loss.