What is System Quality Number (SQN)?
Developed by Dr. Van Tharp, the System Quality Number (SQN) measures the statistical reliability of a trading strategy by multiplying the ratio of mean R-multiple expectancy to R-multiple standard deviation by the square root of the number of trades (capped at N = 100).
Mathematical Calculation
E[R] is the average R-multiple per trade, sigma_R is the standard deviation of R-multiples, and N is the number of trades (capped at 100 so huge trade counts do not artificially inflate the score).
Real-World Numerical Simulation
Computing SQN Across a 64-Trade Backtest in Backtest Lab
Sample Size (N): 64 trades captured via LogToLab Ctrl+C into the Backtest Lab (Sqrt(64) = 8.0).
Average Expectancy (E[R]): +0.35R per trade.
R-Multiple Standard Deviation (sigma_R): 1.00R.
SQN Score: (0.35 ÷ 1.00) × 8.0 = 2.80 (Earns a high System Quality badge ready for multi-account scaling).
Backtest Lab 'System Quality' Badge (Up to 'Holy Grail')
Inside the LogToLast Backtest Lab, the Expectancy card automatically rates your strategy's consistency with a color-coded System Quality badge (scaling from Average up to 'Holy Grail') and lets you click any tag row to exclude weak setups live.
Institutional Comparison Matrix
| SQN Score Range | System Quality Badge | Prop Firm Deployment Readiness |
|---|---|---|
| 1.00 – 1.59 | Below Average | High probability of hitting max drawdown before target |
| 1.60 – 1.99 | Average / Tradeable | Requires conservative position sizing (<6% of buffer) |
| 2.00 – 2.99 | Good / Robust Edge | Ready for multi-account prop firm scaling |
| 3.00+ | Excellent / 'Holy Grail' | Ideal candidate for 10–20+ account parallel replication |
Monitored Prop Firms Applying This Rule
Frequently Asked Questions
Stop Tracking System Quality Number (SQN) Manually in Spreadsheets
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