What is the best way to calculate returns on a set of trades?
The easiest way to calculate returns on a set of trades is by adding the return of all your trades and dividing it by the number of trades.
For example, in a set of 5 trades if the returns were 4%, 3%, -2%, 1.5% and -1%, the return on this set of trade is 1.1%. This is calculated by: (4+3-2+1.5-1)/5=1.1
Another simple way to calculate return on equity (invested funds) is to divide the closing equity (say today’s equity) by the opening equity (at time of purchase) and subtract 1. For example, if the starting equity was $1,000 and the equity position at market close is $1,200 then the return or gain is:
(1200/1000)-1=0.2 or 2%.
To track our trades, we have put together a great Excel based tool available by clicking here.