The number SQN isn’t better the larger it is.

Introduction

In the previous articles, we introduced five robust tests. This time, we will talk about one more evaluation metric we always check in addition to these five tests: SQN.

What is SQN

SQN (System Quality Number) quantifies the “quality” of a trading system. It is calculated not only from simple win rate or total return but also considering the variability of profit and loss per trade, and it is used as an important criterion when evaluating candidates in our AI Strategy Builder as well.

A mindset that does not judge by numbers alone

SQN has rough guidelines for categorization. However, what we feel strongly after working with this number is that it is by no means a simple “the higher, the better” story.

For example, an SQN calculated with a very small number of trades may appear high in value, but the data backing it may be scant, reducing reliability. Conversely, numbers that are not extreme, after enough trades, may actually reflect more stable performance.

Why SQN alone is not used for judgment

That is why we do not decide the pass/fail of candidates by SQN alone. SQN is a piece of evidence that only makes sense when used in combination with the five robustness tests we have discussed so far. Instead of relying on a single number, we confirm from multiple angles. This is our basic stance.

What we've felt so far

No matter how good a single number looks, you must not rest easy on it alone. Each time we confront SQN, we are reminded of this again. In the next article, we will explain why we deliberately avoid exaggerating the number of discoveries and share our stance on information disclosure.

Disclaimer

・The content presented in this article does not advocate specific trading or provide investment advice. It is information sharing only.

・Backtested results based on historical data do not guarantee the same results in the future. Markets always change.

・The decision to actually trade or not should always be made at your own responsibility.

・Indicators and tools introduced in the future are one of the materials for making market judgments, and using them does not guarantee profits.

If you’re curious, please also check out the product page of the Indicator Institute.