Question

I'm a stock trader. I entered and exited the market so far 3 times this year.

1) entered on 12/31/19 at 86.5 and exited on 1/27/20 at 92.72 for a gain of 7.1%.

2) re-entered on 2/5/20 at 105.82 and exited on 2/20/20 at 114.66 for a gain of 8.4%.

3) re-entered on 4/15/20 at 61.55 and exited on 4/30/20 at 69.77 for a gain of 13.4%.

What is the total return to date (should be around 40% to 50%) and a simple formula how to calculate it. I need to do this on many different time frames.

Please make it easy to understand.

Answer 1

The simplest way to calculate the return would be use the total value of the purchase and sales transactions. The same is explained with the use of following example:

Let us assume that each transaction involved purchase and sale of 100 shares. The total purchase and sales value of all the transactions mentioned in the question would be:

Total Purchase Value = 86.5*100 + 105.82*100 + 61.55*100 = $25,387

Total Sales Value = 92.72*100 + 114.66*100 + 69.77*100 = $27,715

Now, we can calculate the total return as below:

Total Return = (Total Sales Value - Total Purchase Value)/Total Purchase Value = (27,715 - 25,387)/27,715 = 8.40%

The total return on these three trades will be around 8.40% assuming all the shares purchased were sold. In this case, we are not calculating the rates based only on the price, but on the total value of transactions undertaken by the trader. The total return on these trades cannot be 40% to 50% because the increase in the stock price of all the transactions is nowhere near to 40% or 50%. Rather, the maximum increase is of only 13.4%.