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Originally the weekly equity for performance test was just the total gain or loss divided by the number of weeks. Then FPA member MikeDnC pointed out the flaw in this logic. He wrote...
Being a little less mathematically inclined, I decided to try this with a simpler calculation to verify the problem...
If a service has been running for 10 weeks and doubled the account (initial balance * 2), this would be a 100% gain. Under the old calculations, the average weekly equity would be 100% / 10 weeks = 10% per week.
The problem is that if an EA, Signals Service or managed account was making 10% per week, that would be compounded. 10 weeks would be the initial balance times 1.1 ten times...
Initial balance * 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1 = Initial balance * 2.59, not times 2.
The original method seemed like an easy way to calculate the weekly equity, but it was wrong. After smacking the programmers a few times with my stapler, they agreed to look into incorporating compounding into the weekly equity calculation. When they didn't get it done after a couple of weeks, I cut off the beer supply to the dungeon where I keep them locked up. Two days later, it was done.
The average number of pips per week is not affected by this. Pips don't compound.
My deepest thanks to MikeDnC for helping the FPA to further improve the performance.
Being a little less mathematically inclined, I decided to try this with a simpler calculation to verify the problem...
If a service has been running for 10 weeks and doubled the account (initial balance * 2), this would be a 100% gain. Under the old calculations, the average weekly equity would be 100% / 10 weeks = 10% per week.
The problem is that if an EA, Signals Service or managed account was making 10% per week, that would be compounded. 10 weeks would be the initial balance times 1.1 ten times...
Initial balance * 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1* 1.1 = Initial balance * 2.59, not times 2.
The original method seemed like an easy way to calculate the weekly equity, but it was wrong. After smacking the programmers a few times with my stapler, they agreed to look into incorporating compounding into the weekly equity calculation. When they didn't get it done after a couple of weeks, I cut off the beer supply to the dungeon where I keep them locked up. Two days later, it was done.
The average number of pips per week is not affected by this. Pips don't compound.
My deepest thanks to MikeDnC for helping the FPA to further improve the performance.
