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How much bang are you getting for your account equity buck over a given time period? In this report, I'll teach you a simple calculation that will allow you to keep track over your return on equity, from quarter to quarter or month to month.
Be aware that your results will vary with market conditions as well as the consistency of your performance. So when you identify swings in your performance, don't take the variance at face value. Examine the trades behind your results as well as the performance of whatever market averages you consider your bogey.
Assuming you add no outside funds into your account, and withdraw no funds during the period, you calculate a straightforward percentage return on equity.
Profit = Ending Equity – Starting Equity; Performance = Profit / Starting Equity
However, if you add or withdraw funds during a given time period, the above equation will produce an erroneous result. In such cases, percentage performance is calculated using the following equations:
Profit = Ending Equity – Starting Equity – Additions + Withdrawals
Adjusted Starting Equity = Starting Equity + (Each Addition X number of days in period remaining when that addition was made / total days in period) – (Each Withdrawal X Number of days in period remaining when that withdrawal was made / total days in period)
Performance = Profit / Adjusted Starting Equity
The following example uses quarterly time periods and assumes the following values:
Starting Equity on Jan. 1, 2001 = $100,000
Additions: $30,000 on Jan. 23, $40,000 on Feb. 1
Withdrawals: $20,000 on March 1, $30,000 on March 7
Ending Equity = $140,000
Profit = $140,000 – $100,000 – $70,000 + $50,000
Profit = $20,000
Adjusted Starting Equity = $100,000 + ($30,000 X 67/90) + ($40,000 X 58/90) – ($20,000 X 30/90) – ($30,000 X 24/90)
Adjusted starting equity = $133,444
Performance = $20,000 / $133,444
Performance = 15%
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The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
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HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
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