I am a new trader and am swing trading different strategies. I have been trying to figure out the easiest way to track the P&L percent return for each strategy. While tracking the profitability of each trade is straight forward, what I am struggling with is how to calculate the P&L % return accurately when the amount of capital the strategy uses changes over time based on if I allocate capital to it or to a different strategy. For example if one strategy looks like it may have a better risk reward ratio I may allocate more capital to that strategy, or I may position size differently based on volatility. To avoid overly complicating an example I will keep it simple to a monthly rotation strategy with round numbers. For example: Strategy 1 January starts with 10K and makes 5k February starts and I add another 10K along with Jan capital and returns for a total of 25K in the strategy and it has another 5K return at the end of the month. March starts and I leave the full 20K capital plus 10K profits for March and return is 0. What would be the right way to look at the profitability of the strategy for Q1 in terms of percent return? Initial Investment 10K Capital added over the period 10K Profit 10K My questions are: 1. Do you show the P&L percent return as 50% for Q1 2. If 50% for Q1 How do you describe the P&L for January and February individually? 50% for January? 20% for February 5k Profit / (10K+10K+5K jan profit)? 3. What if you remove capital from a strategy what would you use as your denominator? Do you use the max capital over the period? Average? individually weighted somehow? 4. Does anybody know of any P&L tracking websites/apps that can help to determine the % profitability of a strategy if the capital is not static - recognizing that % is always based on a specific amount of capital as a concept. I am sure some people will say focus on amount of money made or win / loss rates or something else, but when comparing strategies one of the metrics I would like to be able to use is % Return on Capital....just having a hard time doing this in an easy way, and keeping the capital static is not really an option when volatility adjusting position sizes. I have used 3 different broker platforms in the US and 1 p&L tracking website and none of them can achieve what I want so far, unless they themselves do not know how (I have asked customer support). I am currently using spreadsheets to track by strategy and loosely basing the calculation off of the max capital over the period which obviously will penalize the metric. Many thanks in advance for any insights/words of wisdom!
Look up time weighted returns and money weighted returns. pick the one that makes the most sense for you.
Usual practice is to do % returns based on capital at the start of each period. Ideally you'd do this daily, but since you've given monthly numbers: January starts with 10K and makes 5k Jan 1st capital: 10K Jan profit: 5K % return in Jan: 50% End capital Jan: 15K February starts and I add another 10K along with Jan capital and returns for a total of 25K in the strategy and it has another 5K return at the end of the month. So assuming you add your 10K at the start of the month: Feb 1st capital: 25K Feb profit: 5K % return in Feb: 5/25 = 20% March end capital: March starts and I leave the full 20K capital plus 10K profits for March and return is 0. March 1st capital: 30K March profit: 0 % return in March: 0% So your average ROCE is the geometric mean of 50%, 20% and 0%; which is cube_root(1.5*1.2*1) -1= cube_root(1.8) -1 = 1.216 -1 = 21.6%. Essentially if you had started with the same capital and compounded it up you would have made 21.6% a month, or 80% in total. Or if you prefer, you are making 1.216^12 - 1 = 950% a year (lucky you!). I haven't actually answered your questions: 1. Do you show the P&L percent return as 50% for Q1 YES 2. If 50% for Q1 How do you describe the P&L for January and February individually? 50% for January? 20% for February 5k Profit / (10K+10K+5K jan profit)? YES 3. What if you remove capital from a strategy what would you use as your denominator? Do you use the max capital over the period? Average? individually weighted somehow? Best practice is to use the capital you had at the start of the period. That would lead to weird results if you were using monthly numbers, but withdrew 99% of your capital on day 2 of the month, or injected several million dollars on day 3. Ideally you would be doing this every day, and you'd only withdraw capital after the trading day has ended to keep the numbers clean. 4. Does anybody know of any P&L tracking websites/apps that can help to determine the % profitability of a strategy if the capital is not static - recognizing that % is always based on a specific amount of capital as a concept. Fundseeder, there may be others, but that's what I use (albeit I actually do my own calculations with my own software as I use a slightly different way of measuring capital, but Fundseeder gets close enough). GAT
thank you both so much for taking the time to read and respond! I will spend some time exploring both. All the best.