Equity Curve
What is an Equity Curve?
An equity curve is the graph showing how much your trading or investment account increases or decreases over time.
Key Points About Equity Curves
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Monitor Performance: It can help you monitor performance as its curve goes up or falls down. A smooth upward curve means consistent profits. A jagged or downward curve highlights volatility or losses, showing where things might be going wrong.
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Manages Risk: By spotting big dips (called drawdowns), you can see when your account took a hit. This can help you tweak your strategy, like adding stop-losses or reducing trade sizes.
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Guides Decisions: Other traders base their decisions to raise or decrease their trade sizes by taking cues from equity curves. If the curve shifts up, it might mean increasing one's exposure; otherwise, the curve is dipping down below the average line and hence a time to draw in.
Why It Matters?
An equity curve serves as a performance report for any trading or investment strategy and helps you understand what's working, identify risks, and make better decisions to keep your account growing steadily.
