# How the cumulative results are calculated and why?

There are two types of long-term results used by Signalator: straight and cumulative. This article is intended to describe and explain what are the benefits of each type and how exactly and most importantly why we use one or another type of calculation.

Though, it may be obvious the sum of monthly results must equal the total profit for the year but in fact the cumulative result isn't. As an example, we will take the results for the Domino signals set in 2023 and show you how the results are actually calculated, why it happens and what is the reason to use the cumulative results.

## Why use the cumulative results?

First of all, when you invest for a long period (3 months, year, etc) you are interested in the final amount of money you receive in the end. Any type of investment may provide variable results with ups and downs especially when you trade on the forex market. Thus, the final result compared to the initially invested amount is crucial for analysing and comparison.

To achieve the cumulative results your profits and losses should stay within the trading account for the whole period of analysis. If you invest on the 1st of January 2023 and check what are the results by the end of June 2023, then all profits and losses made during that period must be retained within the account, i.e. profits are not taken and losses are not covered by adding more funds. On the contrary, if you take out all profits at the end of the month or fund the account back to cover losses, you would have non-cumulative results.

In the end, you will find the overall performance of the trading activity. If you begin with a \$1,000 deposit and by the end of the period you have \$1,200, then your cumulative net profit is \$200 or 20%. If we talk about a period of 6 months trading, it means your investment made about +3.3% a month on average. But it does not matter your trading was making you +3.3% every month and almost certain the monthly net results were quite different. Let's dive into the calculation of how the cumulative results are calculated.

# How to calculate the cumulative results?

As we agreed above, we will use the results for the Domino signals set from January 2023 to June 2023 (we have the final results for June 2023). And we have a period of six months in total. The initial deposit is \$1,000.

The monthly results are as follows. Jan 23 +3.0%, Feb 23 +7.0%, Mar 23 +1.5%, Apr 23 +4.5%, May 23 + 15.7%, Jun 23 +5.1%. The results are in percentage for the equity at the end of each month. The result in pips may be different. You may read about the differences between pips and percentage results here.

If you sum up the received results you will get exactly +36.8%. A very good result with an average of +6.13% profit per month. Though we see the monthly results are not +6.1% every month. Basically, only 2 out of 6 months were above +6% (Feb and May). Anyway, with the initial deposit of \$1,000, we should have by the end of June \$1,368 in our account (a profit of \$368).

But we don't. The equity balance at the end of our analysis period is different. And the longer period we analyse and the bigger the size of our investment, the more the discrepancy would be.

By the end of the analysed period, the equity balance is \$1,421.5 which is \$53 more than we expected or approximately 5.3% difference. The total net profit would be +42.15 and it gives us a net of +7% a month. The longer the period we trade the more this difference can be.

How did it happen?

Every month we set the lot size based on the equity we have on the 1st trading day of the month. Hence, the results for the coming month are calculated in percentage to the balance of the current month, not the initial equity. If we invest \$1,000 in January, then by the end of January we have \$1,000 + 3% making us \$1,030. Then in February, we receive a profit of +7%. And this profit is added to the \$1,030 we had at the beginning of February. It gives us a net of +\$72.1 and not \$70 if we used the initial deposit or withdrew all the profits at the end of January.

So, the results would be +\$30 in January, +\$72.1 in February, +\$16.5 in March, +\$50.4 in April, +\$183.5 in May and +\$69 in June. A total of \$421 compared to the anticipated \$368 without the cumulative effect.

## The cumulative results are better?

The cumulative result may be equally likely higher or lower than a non-cumulative one

If we simulate trading and change only one result from +15.7% in May to -15.7% then the cumulative results will be much lower compared to non-cumulative results. The non-cumulative results would be +\$30, +\$70, +\$15, +\$45, -\$157, +\$51. A total net profit of \$54 or +5.4% (exactly +0.9% a month). However, if used the cumulative profits, the results would be +\$30, +\$72.1, +\$16.5, +\$50.4, -\$183.5, +\$50.2. A total of \$36 or +3.6% (+0.6% a month). This is just a simple example and you clearly see the cumulative results may be better or worse compared to the non-cumulative results.

Which type of trading to use? Cumulative or Non-Cumulative?

The more stable results are, the higher the cumulative effect you receive. If your trading activity gives you profits mostly with a small monthly profit deviation, then the cumulative results should be higher than the non-cumulative results and vice versa. However, each trading activity must be analyzed or predicted before deciding which type of results and trading to choose. When you begin your trading activity you must decide whether you use the cumulative effect or not. You may always switch between two of these options or use a combination when you take only a part of the profits. But this lies within the field of money management and is totally out of the scope of this article.