Subtle & customizable audible cues to indicate when charts turnover, plus world clocks for any market — by & for professional traders
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Subtle & customizable audible cues to indicate when charts turnover, plus world clocks for any market — by & for professional traders
Open the appGuidance last reviewed 2026-08-19
The System Quality Number is Van Tharp's attempt to answer a single question: how tradeable is this method? Not how profitable — how tradeable, which folds in whether the results are consistent enough to stay with and whether there are enough of them to believe.
It is one of the few metrics built specifically for a trade log rather than for a fund's monthly returns, which makes it unusually well suited to an individual trader.
| What it combines | Edge, consistency and sample size in one number |
| The formula | Expectancy in R ÷ variability of R, scaled by trade count |
| The cap most people miss | Trade count is capped at 100 — it cannot be farmed |
| The bands | Below 1.5 hard to trade · 2–3 good · above 5 rare |
| Where it misleads | Fat tails, non-independent trades, small samples |
Three things at once, which is why one number can carry so much:
Edge — is the average trade positive, measured in units of risk rather than currency?
Consistency — do the results cluster, or does one enormous winner carry a pile of losses? A method averaging +0.3R with everything between −1R and +2R is far easier to trade than one averaging +0.3R because a single +25R rescued it.
Weight of evidence — how many trades produced the first two? A good-looking result from thirty trades earns less than the same result from three hundred.
⭐ The middle one is where SQN differs from expectancy. Expectancy tells you what an average trade is worth. SQN tells you how reliably you get it — and reliability is what determines whether you are still following the method when it matters.
SQN = (average R-multiple ÷ standard deviation of R-multiples) × √N
Where N is the number of trades, and everything is measured in R — each trade's result divided by what was risked on it.
Read it in two halves:
The fraction is the quality of the edge. Average result over how much results vary. This is the same shape as a Sharpe ratio, applied to trades rather than to periodic returns.
The square root is the confidence. More trades, more weight — but with diminishing returns, because uncertainty falls with the square root of the sample rather than with the sample.
⚠️ It requires R-multiples, which requires that you defined your risk before entering. Reconstructing risk afterwards from where a trade happened to go produces a number, not a measurement.
🔴 N is capped at 100. In Tharp's definition the trade count used in the formula is min(number of trades, 100).
This matters and it is left out of most explanations, including plenty of platform documentation. Without the cap, √N grows without limit and a method could improve its score simply by trading more often — a scalper taking 4,000 trades would out-score a swing trader with an identical edge purely on volume.
⭐ The cap turns the sample-size term into what it was meant to be: a confidence adjustment that stops mattering once you have enough evidence. Past 100 trades, extra trades tell you nothing new about whether the edge is real, so they stop contributing.
⚠️ Check whether your platform applies it. An uncapped SQN from a long record can be several times larger than a capped one for the same trades, and the two are not comparable. If a number looks implausibly good, the cap is the first thing to check.
These are Tharp's own classification, widely reproduced:
| SQN | Description |
|---|---|
| Below 1.5 | Hard to trade |
| 1.5 – 2.0 | Average |
| 2.0 – 3.0 | Good |
| 3.0 – 5.0 | Excellent |
| 5.0 – 7.0 | Rare |
| Above 7.0 | Treat with suspicion |
⚠️ These are a practitioner's classification, not a statistical finding. They are useful as a rough map and they are not thresholds anything hinges on.
⭐ And a very high SQN deserves skepticism rather than celebration. The most common causes of a number above 5 are a short record, a sample selected after the fact, or risk that has not shown up yet — not a superb method. The same warning applies to Sharpe ratios for the same reason.
Fat tails. SQN uses standard deviation, which assumes results scatter in a reasonably well-behaved way. Trading results often do not — a method with one +40R in it will show a large standard deviation and a poor SQN, even though the outlier was the point. ⚠️ Positive skew is penalized, exactly as it is by Sharpe.
Trades that are not independent. Six positions on the same theme are one bet expressed six times. SQN counts them as six pieces of evidence, so the confidence term overstates what you actually know.
Small samples. Below about 30 trades the standard deviation is itself badly estimated, so both halves of the formula are unreliable at once. See how many trades before the numbers mean anything.
Changing position sizing. Because everything is in R, changing your risk per trade does not change SQN — which is usually a feature. But if your R itself was inconsistent, or reconstructed, the whole calculation inherits that.
They look similar and answer different questions.
| Measure | Works on | Asks |
|---|---|---|
| SQN | Individual trades, in R | Is the average trade good, consistent and well evidenced? |
| K-ratio | The equity curve | Did the account rise steadily or in lucky lumps? |
| Sharpe | Periodic returns | Was the return worth the volatility? |
⭐ SQN and K-ratio are the pair worth having together. SQN can be excellent while the equity curve is ugly — good trades arriving in clusters with long flat stretches between. The K-ratio catches exactly that, because it looks at order, which SQN discards entirely.
| Term | Meaning |
|---|---|
| R | The money risked on a trade — entry to stop |
| R-multiple | A trade's result divided by its R |
| Expectancy in R | The average R-multiple across all trades |
| Standard deviation | How widely results scatter around their average |
| N | Number of trades — capped at 100 in Tharp's formula |
| Positive skew | A distribution with a long tail of large wins |
| Independence | Whether one trade's result is unrelated to the next |
SQN is a trade-level summary. For the individual numbers underneath it, see Trading Performance Metrics Explained. For the account curve those trades produced, see What is the K-Ratio? and Maximum Drawdown.
SQN® is Van Tharp's measure and the bands above are his classification; platforms differ in whether they apply the 100-trade cap, so check before comparing figures from different tools.
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