Let's say I have one trade with performance 10% and another trade with performance -6%. How to calculate combined performance from 2 trades?
Convert them from percentages to multipliers of your account, the 10% becomes a 1.1 and the 6% loss becomes .94. Then you can multiply them together to get the overall effect on your account of the two trades.
We are testing a strategy. Our testing program generates a number of trades and calculates % profit / loss on each one. Trades are in different instruments and prices, so cost base for each one is different. We don't know what size of account is required to trade the strategy if it is successful, so we cannot correlate with the account size. The question is: how to calculate combined performance for such a sequence of trade if we have profit for each one in %s.
You mention "sequence of trades" - does this mean you only take one trade at a time? Please give a specific example of some trades in different instruments together with all relevant info (% profit, is it concurrent with another trade etc.) and then exactly what you wish to calculate and the assumptions to be used (what % of capital you invest per instrument etc.). Otherwise, maxpi has provided you with the answer.
We are testing a strategy that can be used concurrently in multiple instruments. It is one trade at a time in each instrument. Here are some of the trades generated by our program: Market,Start,Duration,End,Profit AA,19880812,43,19881012,13.3365821962313 AA,19881117,43,19890119,17.3039215686275 AA,19911004,43,19911204,0 AA,19950131,43,19950331,8.57845649277442 AA,19950921,43,19951120,-2.32731612710727 AA,19970401,43,19970530,7.87083162398172 AA,19990305,28,19990414,20,-11.5394082607197 AA,20000121,43,20000322,-9.59461279461279 AA,20010323,24,20010426,20.2777777777778 AA,20010614,43,20010814,-10.0968523002421 AA,20010917,43,20011114,14.5987654320988 AAPL,19890621,43,19890821,-1.74418604651163 AAPL,19901224,28,19910201,20 AAPL,19910502,43,19910702,-10.5263157894737 AAPL,19930609,21,19930708,-18.8888888888889 AAPL,19941004,6,19941011,20 AAPL,19950227,43,19950427,0.325732899022801 AAPL,19950915,43,19951114,9.69899665551839 AAPL,19980901,8,19980911,20 AAPL,19981005,43,19981203,10.9926470588235 AAPL,19990308,36,19990427,22.1616541353383 AAPL,20000413,28,20000523,-1.9170403587444 AAPL,20020610,17,20020702,-20.7169459962756 Trades in different markets may or may not coincide. We are trying to optimize this strategy and make it usable. We need to compare results of different tests with each other. Until testing is completed we cannot say how big account is required to trade this strategy or how much money should be allocated for each instrument. Percentages are calculated based on equity invested into each trade. Considering that percentages are based not an account size but on a trade equity size we are not sure that multiplying percentages to get total effect of the strategy will give us the correct result. One consideration is that we are not reinvesting the profit into the next trade, we just trying to compare test runs with each other. We would appreciate your advice.
if you don't know the size of the account and you have overlapping variable-sized trades then IMO you don't yet have a system because you cannot even say whether or not there will be enough free cash laying around to make the trades(!) pick an account size that seems "reasonable" based on the max amount you can have in play at any one time.
From a quick glance at your data, it appears you are exiting the trades upon reaching a 20% profit/loss or 43 trading days, whichever comes first. Assuming that you "are not reinvesting the profit into the next trade" and that the "trade equity size" remains constant for each instrument, you would have to add (not multiply) the percentages in order to obtain the "combined performance". Any deviation from the above assumptions (and I'm sure there will be some) would naturally need to be taken into account.