Skip to content
GetProfitable
Search
Dictionary

Equity curve

The running account value over the life of a strategy. The most-shown and least-informative single chart in trading, unless you know what to look for.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Read it for shape, not slope. Where are the flat periods and how long are they; is the max-drawdown a single event or a pattern; does the strategy make its money in a handful of months; does the slope change after a particular date, which often marks either a regime change or the end of the in-sample period.

A curve that rises smoothly with no meaningful drawdown is a warning rather than a selling point. It usually means negative skewness, an unmodelled cost, or leakage, because real strategies with real risk do not produce straight lines.

Equity-curve trading, turning the system off after N losing days and back on later, is usually a bad idea. It adds parameters, cuts sample, and mathematically cannot help unless the strategy's returns are autocorrelated, which is testable and usually false.

Related: drawdown, max-drawdown, skewness, strategy-monitoring

Educational only, not advice. Spotted an error? Post in Site Feedback.