Advice on equity curve

Hello all,

A quick question: Does anyone know how to construct a professional equity curve?

Any general observations would be welcome but here are my specific questions:

a) If you turned, lets say, £1,000 into £40,000 would you start the Curve from £1,000 or would you start if from £0 and detail only the £39,000 rise in profit. I assume the latter but not sure.

b) Should you chart your P&L at the CLOSE of every trade or the close of every day/week etc? If its the close of every trade then its not as reliable as its easier to manipulate because you might be carrying huge losers that are not yet account for but then again if its the close of every day it may look unnecessarily volatile if you have a position trade that consolidates for a few days, not to mention this is harder and more time consuming to work out.

Any other thoughts would be much appreciated.

Tom

Hey there Tom,

I'd definitely start it with what you started out with, ie is 1000,-.

Thats the only size that is interesting, what did you turn into what, and you turned 1000,- into 40K, so thats what the curve should show.

And I'd also say that the close of every single trade should be included, the data can easily be compressed later on anyway, but that is imo simply the most honest depiction of your trading, showing your progress trade by trade.

And, btw, if you did that, then respect and hat off mate

BSD said:

Hey there Tom,

I'd definitely start it with what you started out with, ie is 1000,-.

Thats the only size that is interesting, what did you turn into what, and you turned 1000,- into 40K, so thats what the curve should show.

And I'd also say that the close of every single trade should be included, the data can easily be compressed later on anyway, but that is imo simply the most honest depiction of your trading, showing your progress trade by trade.

And, btw, if you did that, then respect and hat off mate

Click to expand...

Hey BSD, thank you for your reply. I'm afraid I can't take credit for that as it was purely theoretical. lol

Hi Tom,

Regarding the curve, it would work just like MA, the further out you plot the smoother the curve. Depending on style of trading you could do it day by day and also a weekly one, as the months pass, do it by the month as well for a more smooth fit.

As for starting the curve. Different for different people, personally, I'd start from the 1k but obviously allow the graph to go to zero. So, the graph would have a huge spike from where you initially invested the cash at the begining of the graph to 1k, from here on in the curve would start to form.

start from £1000. most ec's are constructed on a trade close basis, but to get the real picture it needs to show dd or profit of any current trades

The key is to construct a chart that looks most favourable to the eye. When presenting these things the audience will not have the eye for detail that you have putting them together. Put the details in the data on paper but make the graph look as good as it can. For example, if only close trades look better than mtm opens then use that but mention in the acompanying data the open position draws.

Hi TD

It depends on what you want the curve to show...

If it's for your own purposes, just for trading records and to monitor your own performance, then TBH I'd use a couple... both trades as they are closed and end of day positions (a useful tip is to draw a barchart underneath the curve, much like volume on a chart, showing the PnL for the sessions as well). The reason I'd use two is that... well you want to hold yourself accountable, right? There is little point in hiding information from yourself that is business critical - for example, only plotting the closes of your trades might hide the fact that each position goes against you before you can take some profit - if you are using to monitor your performance, you want a warts and all account of it.

Another point I'd make is about the scaling of your returns... It makes alot of sense to plot a Log of your returns rather than absolute cash returns... again, if it's for your own purposes, you want to be able to see if and when the R:R of your trades is falling away from position size, for example.

I don't really think it makes much difference where you start the graph from TBH; if anything, I would "set" your initial balance to zero, as then any losses off the bat show you as being -ve $XXX instead of +ve $(1000-XXX).

All in all thats maybe 3 curves in total... Equity at the close of each trade, Equity at the and of each day, and the "rate of your return"(the Log graph). Not forgetting the bar charts, is a bit more work... BUT, if your doing it for yourself, theres no point in mis-representing the truth.

All three should be pretty easy to knock up in excel.

HOWEVER....

If your drawing the curve to impress others, just draw whatever looks the best and bulls!t around the details.