Why we show time-weighted returns by default

If you never add or withdraw money, this post doesn't apply to you and both numbers agree. If you top up your account when you have spare cash, or pull some out when you need it — which is most people — then the obvious way of calculating your return is quietly lying to you.

The problem, with numbers

You start January with ₹5,00,000. Over the first half you trade well and finish June at ₹6,00,000 — up 20%.

Pleased, you deposit another ₹5,00,000 in July. You now have ₹11,00,000.

The second half is flat. You end December at ₹11,00,000 exactly.

Simple return compares end to start, adjusting for the deposit:

(11,00,000 − 5,00,000 − 5,00,000) ÷ 5,00,000 = 20%

Fine so far. Now change one thing: suppose the second half loses 10% instead of being flat. You end at ₹9,90,000.

(9,90,000 − 10,00,000) ÷ 5,00,000 = −2%

Your simple return says you were down 2% on the year. But you made 20% in the first half and lost 10% in the second. As a trader you were meaningfully positive:

1.20 × 0.90 = 1.08  →  +8%

Both numbers are arithmetically correct. They answer different questions.

How time-weighted return works

Break the period at every cash flow. Compute the return within each sub-period, when the capital base was constant. Chain them together:

TWR = (1 + r₁) × (1 + r₂) × ... × (1 + rₙ) − 1

Because each sub-period return is computed against the capital actually in the account at that time, depositing money can never inflate or deflate the result. The timing of your cash flows drops out.

This is the standard by which professional fund managers are measured, for exactly this reason: a manager shouldn't look better because investors happened to deposit before a good quarter.

Why it matters more for an active trader

The distortion gets worse the more your capital base changes. A trader who deposits salary monthly and withdraws for expenses can have a simple return that's off by a wide margin in either direction — and crucially, the error moves around, so year-on-year comparisons become meaningless.

Worse, the error is not random. Traders tend to deposit after good periods and withdraw after bad ones. Simple return systematically over-weights your capital during the periods immediately following your best runs.

When simple return is the one you want

Simple return isn't wrong — it's just answering a different question, and sometimes that's the question.

• "How much did my net worth actually grow?" — simple return.
• "Is my strategy working?" — time-weighted.
• "Should I keep doing this?" — time-weighted, then check the drawdown.
• Talking to your accountant — the rupee figures, not either percentage.

So Trader Blueprint computes both, always, and shows time-weighted first. You can flip the default in Settings.

The ledger underneath

None of this works without an honest record of cash movements, which is what the Capital tab is for: every deposit and withdrawal with a date, and a running balance computed from them.

That balance is deliberately never stored as a column. A stored running balance is wrong the instant you backdate a row you forgot — and a manual journal invites exactly that. It's recomputed from the transactions every time, so a correction entered late still produces the right history.

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