Judge returns by the pain, not the swings
Volatility to the upside is not risk — it is what you want. Sortino corrects Sharpe’s biggest flaw by counting only downside deviation, giving strategies with sharp rallies a fairer score. Compare it side by side with the classic measure on the Sharpe ratio calculator.
Sortino: punishing only the bad volatility
The Sharpe ratio penalizes all volatility — including the upside kind, which nobody actually minds. Sortino fixes this by dividing excess return by downside deviation only: violent up-moves don't hurt the score, violent drawdowns do. For crypto strategies with asymmetric returns (small steady losses, occasional big wins — or the reverse), Sortino describes reality better than Sharpe.
Reading the number: below 1.0, the downside swings outweigh the returns — weak. 1.0–2.0 is respectable for a directional crypto strategy. Above 2.0 on a year of daily data is genuinely good; above 3.0, check your data before believing it — survivorship, short samples, and one lucky trade produce most miracle Sortinos.
Trend-following systems are the classic Sortino outperformers: their many small losses and few huge wins destroy their Sharpe but flatter their Sortino, which correctly identifies that their volatility lives mostly on the pleasant side.