How would you calculate the average Daily return of fx trading activity and expected end of the month return at the start month.
I am lookin to calculate the average daily return of 6 months Fx trading statement. also, looking to calculate the expected end of month return. How would some one calculate it. do i need to use (Profit/Deposit)/Number of trading days to find my daily averagte return? I need to convert this to programming language. I would be grateful if you could provide me with equations as i am not looking to use Excel.
Just to make sure i got it right.
if i have 11000 balance and my deposit was 10000 and i’ve been trading for 9
the calculation would be : 1000/9
is that right?
what about if i didnt do trades in few days and again i restarted my trades?
if i didnt trade for few days and i started trading again, should i exclude those days? or i use the trading days from the day i have deposited my fund in the account?
Yes but if youre writing a program include a variable for the initial deposit and include that in the calculation in case you fund your account with more funds at a later date that adjustment can be incorporated into the calculation.
If you didnt do trades for a few days your calculation will still hold true, that is why it is average daily return.
For instance if you trade on 2 days out of 4 and make $100. The 5th day you trade again and make another $70 your average daily return will be $50 per day at the end of the 2nd day.
On the third day you didnt trade and made no more money so your average is now dropped to $33.33.
The forth day you still didnt trade your average is now $25
The fifth day you did trade you made $70 your total is now $170 divided by 5 days so your running daily average at the end of the 5th day is $34
I just thought about all that again there is more than one way of looking at it, if you want to know the average amount you make per actual trading days then you would divide by the number of days actually traded on.
If you just want to know how much you make on average whether you trade or not, then you would divide by the number of days since you started trading.
Also the average monthly return is a similar problem, if you want to know how much you make per month on average you would multiply your average daily return by the number of days in the month, if you just want to know how much you make on average each month on days traded, then you would multiply your average daily return by the number of days traded that month.
One little wrinkle to throw in here. Are you compounding your results? By that I mean are you using your profits to trade bigger? If so then you need to factor that in.
the calculation based on:
average daily return = (current balance - initial deposit)/ the number of days traded already factors in the compounded profits because the current balance changes everytime you make some profits, or losses.
To me, “return” means %, which clearly you’re not calculating here. To get the daily return you would need to do this:
Current/Initial ^ (1/days) - 1
In other words, take the 1 + the raw % return, raise that to the power of 1 over the number of trading days in question, then subtract out the 1 and you have the compounded daily rate of return.
If you do the calculation your way what you end up with is a $ average. The problem with that is as your account balance rises the average will tend to rise just because you’re trading bigger. It doesn’t really give you a performance statistic you can necessarily use. In fact, it can hide problems. For example, if you’re averaging $100/day on a $10,000 account and $150/day on a $20,000 account you’ve experienced a daily average return drop-off even though your daily average gain is higher.
I had assumed by his question he wanted a dollar average, I agree with your method of producing a percentage would be a useful way to keep tabs on the overall performance, but unless you increase your lot sizes as you increase your account balance you wouldn’t expect to see an exponential increase in profits and your percentage gain would appear to fall even though you were performing equaly as well as a trader.
Variable fraction position sizing not only leads to compounding, but it also helps minimise losses through periods of drwadown. On what grounds are you suggesting that it shouldnt be used ?
Definitely. When I deal with tracking returns where money is coming in and out of the portfolio I use mutual fund type tracking. By that I mean I start off with some number of “shares” which rise or fall in value as the account gains or losses. When I put money in I buy more shares. When I take money out I sell shares. Doing this I just track share value rather than worrying about how much is in the account.
Absolute drawdown is the largest $ decline in portfolio value from peak to trough. Max drawdown is the same thing, only expressed in % terms, which means the max drawdown period might not be the same as the biggest absolute drawdown period.
At least that’s how I would differentiate the two.
