Some months ago, I removed the “My Trading” tab from the site because it was just too confusing to look at and too time consuming to maintain. The old version tracked several different FX trading accounts that I was running; one for each strategy. So there was an account for carry trading, another one for pure fundamentally based trading, one for my tick density signals, and so on. Very unwieldy!
So over the past week, I’ve consolidated all of those accounts into one, and am currently developing a consolidated trading plan which incorporates all of my various research-backed trading tools into a single approach. That’s the account I’ll be tracking on the new “My Trading” tab.
I’ll be tracking the performance on a compounded weekly return basis, net of deposits and withdrawals. Huh? Ok, so here’s what that means.
The account starts at a nominal equity value (NEV) of 100% at the beginning of the first week, which was the week ended 10/1/2016. For each week, the profit is equal to:
Ending Value – Starting Value – Deposits + Withdrawals
Obviously, a negative number is a loss. The return for the week is:
To get the new NEV, I just multiply the prior week’s ending nominal equity value by:
(100% + Return)
This approach eliminates the confusion caused by using actual dollar amounts and having to constantly adjust for deposits and withdrawals. It shows what a theoretical account would have returned over time without any deposits or withdrawals.
Here’s an example.
Suppose I actually start the account with $1000. The initial NEV is 100%. During the first week, I don’t make any deposits or withdrawals, and the ending value is $990. My profit is:
$990 – $1000 – $0 + $0, or a $10 loss.
The return is -10/1000 = -1%.
The new NEV is 100% x (100% – 1%) = 99%
During the next week, I deposit $100 and the account value at the end of the week is $1080. My actual profit is:
$1080 – $990 – $100 + $0 = -$10 (another $10 loss! boo!)
The return is -10/990 = -1.01%.
The new NEV is 99% x (100% – 1.01%) = 98%
So even though the actual account value increased by $90, the NEV decreased from 99% to 98%, reflecting the actual trading loss on the initial value for the week. Continuing, let’s say I have a good week, but I have to withdraw more than I made due to unexpected expenses or something. So I withdraw $200, and the account value at the end of the week is $960. The actual trading profit is:
$960 – $1080 – $0 + $200 = $80 (yay me!)
The return is 80/1080 = 7.41%.
The new NEV is 98% x (100% + 7.41%) = 105.26%
So this time, the actual dollar value of the account went down, but the NEV went from 98% up to 105.26%, reflecting the actual stellar trading performance for the week.
So now, compare this to a theoretical account with no deposits or withdrawals, starting with the same $1000. A 1% loss after the first week would have brought the account to $990. A 1.01% loss in the second week would have brought the account to $980. Finally, a 7.41% return on that $980 in the third week would have brought the account to $1052.62, or 105.26% of its original value of $1000.
As you can see, we come out with the same percentage return over time. The advantage of just tracking percentage returns like this is that we eliminate the confusion of adjusting dollar amounts for deposits and withdrawals (and things like carry interest and dividends as well).
So that’s how the chart on the new “My Trading” tab is constructed. Right now, I’m still in the first week, so there’s no chart up yet. I’ll put it up next week.
So until then…keep pipping up!
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