6 Ways to Track Portfolio Performance via Automated Trading Software

Choosing an automated trading platform with comprehensive backtesting and forecasts on historical data to optimize your trading strategies i...

Choosing an automated trading platform with comprehensive backtesting and forecasts on historical data to optimize your trading strategies is the first part of achieving trading success.

However, according to a famous quote – "You cannot manage what you don't measure." To achieve complete success, you also need to measure the performance of your trading strategies. As a result, you can continuously adapt your positions and get the best return on investment.

6 Ways to Track Portfolio Performance via Automated Trading Software

A portfolio is referred to as a group of strategies that are built according to arbitrage criteria. They are created and branched in various ways depending on the market, asset class, currencies, etc. You can define several portfolios using an automated trading app to group all the results of your strategies and compute the overall performance.

Here’s how implementing an automated trading platform or algorithmic trading solution will help you measure your portfolio performance and track progress toward achieving your goals:

1. Costs and Impact of Slippage

When you execute trade orders, there can be a variation between the actual price and the trade's expected price at which the trade is carried out. It is known as slippage, and it most often occurs during uncertain conditions of market volatility or the execution of large orders.

Since slippages are an inevitable part of trading, you still need to understand their impact to monitor your portfolio performance. This way, you can optimize your positions to reduce the probability of high slippage costs.

2. Real-Time Performance Metrics

It's vital to understand the key drivers of portfolio performance at the granular level to ensure overall trading success. Using real-time metrics that capture the hourly, daily, weekly, monthly, and annual returns will help you drill down and identify where you are lagging.

With metrics like statistical analysis, real-time charting, the percentage of returns achieved, etc., you can make data-driven decisions. Automated trading platforms can help you generate a comprehensive report that reveals real-time portfolio results.

3. Portfolio Composition

Since portfolios are composed of multiple strategies, you also need to know the statistical analysis of the individual strategies that contributed to the portfolio. With a detailed charting report, you can examine each strategy's individual growth curve to showcase the highest-performing and least-performing strategies within the portfolio.

You can also drill down to crucial statistics such as the financial profit, profit in points/pips, percentage return, percentage drawdown, and contribution to total profit based on strategies, instruments, and time frame.

4. Benchmark Analysis

A benchmark assessment is an essential part of portfolio performance that analyzes the portfolio's allocation, risk, and return against the stipulated benchmarks. You can utilize a variety of benchmarks to measure portfolio performance compared to various market segments.

Traders often use the S&P 500 index benchmark for equity performance since the index constitutes the top 500 publicly traded US companies. However, you can use various benchmarks based on investments, risk tolerance, and time horizon.

5. Forecasting

Based on the portfolio’s performance, automated trading apps can generate a prediction model that will provide the projected direction of the portfolio's returns in the following six months or other timelines.

6. Drawdown Analysis

A valuable assessment of portfolio risk, drawdown measures the level of the decline from the most recent peak to the trough during a specific period. A detailed analysis of the portfolio’s drawdown periods will provide insights into the strategy’s recovering power from the drawdown. As a result, you can optimize your strategies according to the duration and size of drawdowns that may pose a risk.

Automating trading systems provides several valuable tools to evaluate and keep track of portfolio performance. Apart from backtesting your trading strategy, it’s imperative to monitor the entire life cycle of the strategy to understand what impacts its performance and compare returns in live accounts.