I track my trading account performance using the geometric average (or mean) on a weekly basis.
Each week I calculate the growth factor as end of week equity / initial equity. So, a 3% increase would be a factor of 1.03 and a 1.5% decrease would be 0.985
For example:
At week zero equity is €2,523
Week 1: 1.278
Week 2: 1.036
Week 3: 1.175
Week 4: 1.143
Week 5: 1.205
Equity is now €5,406
The Weekly Geometric Average (WGA) is the 'n'th root of the product of the last 'n' weekly factors. So for the results above, the WGA is 1.164 641 739 This is by how much the account has grown each week, on average, with compounding.
To update the WGA each week, instead of redoing the product of all weekly factors and taking the root (which gets tedious) one can simply calculate the new WGA as:
WGA at week 'n' = (old WGA ^ (n-1) * this week's factor) ^ 1 / n
where x ^ 1/n is the same as the 'n'th root
To calculate future equity, in 'm' weeks, at current growth rate,
future equity = current equity * WGA ^ m
So, after another 10 weeks at 1.164... per week, the equity would be €24,820
To calculate how many weeks it would take to reach a given equity, a^n=b gets rewritten as n=Log b / Log a, so,
Weeks to target = Log t / Log WGA
where 't' is the target growth = target equity / current equity
So, how many weeks to get to €100,000?
Log (18.497...) / Log (1.164...) = 19.14 weeks
I figured some of you didn't know and would appreciate it.
Do you use this method already?
Each week I calculate the growth factor as end of week equity / initial equity. So, a 3% increase would be a factor of 1.03 and a 1.5% decrease would be 0.985
For example:
At week zero equity is €2,523
Week 1: 1.278
Week 2: 1.036
Week 3: 1.175
Week 4: 1.143
Week 5: 1.205
Equity is now €5,406
The Weekly Geometric Average (WGA) is the 'n'th root of the product of the last 'n' weekly factors. So for the results above, the WGA is 1.164 641 739 This is by how much the account has grown each week, on average, with compounding.
To update the WGA each week, instead of redoing the product of all weekly factors and taking the root (which gets tedious) one can simply calculate the new WGA as:
WGA at week 'n' = (old WGA ^ (n-1) * this week's factor) ^ 1 / n
where x ^ 1/n is the same as the 'n'th root
To calculate future equity, in 'm' weeks, at current growth rate,
future equity = current equity * WGA ^ m
So, after another 10 weeks at 1.164... per week, the equity would be €24,820
To calculate how many weeks it would take to reach a given equity, a^n=b gets rewritten as n=Log b / Log a, so,
Weeks to target = Log t / Log WGA
where 't' is the target growth = target equity / current equity
So, how many weeks to get to €100,000?
Log (18.497...) / Log (1.164...) = 19.14 weeks
I figured some of you didn't know and would appreciate it.
Do you use this method already?
Temperance (restraint in action, thought or feeling) is a virtue.