Gold trading basics · Lesson 43 of 54

Gold Trading Returns: Add Money, Compound Percentages

Calculate sequential returns and distinguish an arithmetic average from the growth of account equity.

Compound The Factors: instructional diagram for lesson 43 — CYGURU GOLD · Original lesson schematic. Examples are illustrative.

The denominator changes after each period

A percentage return applies to the capital present at the start of its measurement interval, unless a different convention is explicitly defined. Consecutive percentage returns therefore multiply growth factors. Adding the percentages ignores the changing denominator. Before computing a trading return, state whether the numbers refer to account equity, margin, notional exposure or a position’s price. These measures are not interchangeable.

Calculate an up-and-down example

Start an invented account at USD 10,000 with no deposits or withdrawals. A 20% gain raises it to USD 12,000. A subsequent 20% loss leaves USD 9,600. The combined return is 1.20 × 0.80 − 1 = −4%, despite an arithmetic mean return of zero. The two-period geometric mean is the square root of 0.96 minus one, approximately −2.02% per period.

State what the average answers

The arithmetic mean summarizes individual period returns. The geometric mean describes a constant compounded rate matching the start-to-finish growth over equally defined periods, when the required growth factors are valid. Neither tells the whole path, risk or likely future result. Two accounts can finish at the same value while experiencing very different drawdowns and liquidity pressures. Keep the equity path beside the summary.

Keep costs and annualization explicit

If returns already reflect commissions and financing, subtracting those costs again understates performance. If they are gross, excluding them overstates what remains. Do not annualize a few unusually strong days and present the result as expected income. Annualization is a mathematical convention dependent on the period and compounding assumptions; it does not supply evidence that a short sample will repeat.

Practice task: reconcile two summaries

Use hypothetical period returns of +10%, −10% and +5%, with no external flows. Multiplying 1.10 × 0.90 × 1.05 gives 1.0395, a total gain of 3.95%. Compare that with the sum of 5% and explain the discrepancy. Record net or gross status, interval dates and starting equity. Repeat with an extra cost and show exactly where it enters the calculation.

Gold Trading Returns: Add Money, Compound Percentages

The denominator changes after each period

Calculate an up-and-down example

State what the average answers

Keep costs and annualization explicit

Practice task: reconcile two summaries

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