Analysis & metrics

Equity curve

By Jarosław Wasiński • Published: Mar 9, 2026 • Updated: Oct 11, 2026

A chart of account value or a performance index over time. Specify whether it shows balance, equity including open positions, or an external-cash-flow-adjusted series, together with currency, costs and sampling frequency. It helps assess drawdown paths and profit concentration, but its shape alone does not establish an edge, overfitting or manipulation. Smoothness can reflect valuation or sparse observations, while jumps can reflect cash flows; balance can hide open losses. Deposits are not strategy returns, and ending value should be assessed alongside exposure and the complete history.

Example. With no external cash flows, equity observations are USD 10,000, 10,500, 9,900 and 10,800. The largest drawdown between these observations is 600/10,500 ≈ 5.71%, and the ending return is 8%. A subsequent USD 2,000 deposit would raise account value to USD 12,800, but would not change the strategy’s return to 28%.

What does the chart actually plot?

A curve can show booked balance, equity including open positions, or a cash-flow-adjusted return index. State valuation method, currency, costs and frequency. Deposits and withdrawals are not trading gains or losses. Use a consistent cash-flow treatment for performance comparisons; simply subtracting deposits does not always give a valid percentage return when their timing and invested capital change.

The order matters

Identical sums of trade results can produce different drawdowns, margin requirements and ability to continue trading. Recording only after trades close can hide substantial open-position losses. Daily points can also miss an intraday trough. Evaluate depth, time below the high-water mark and profit concentration, rather than only ending value. The example’s 5.71% describes only the specified observations.

Smoothness is not a diagnosis

A perfectly smooth line warrants checking valuation, sampling frequency and missing data, but alone does not establish fraud or overfitting. Long flat stretches can reflect no exposure, while jumps can come from cash flows or rare trades. Averaging into losses can conceal risk in balance, so inspect equity too. There is no single healthy shape for every strategy.

Presentation currency

Initial USD 10,000 at EUR/USD 1.25 equals EUR 8,000. Ending USD 10,800 at 1.35 also equals EUR 8,000: this assumed conversion gives an 8% USD return but a 0% EUR return before exchange costs. Explain changes in reporting currency. The series should use appropriate conversion rates at each observation, rather than one current rate for the entire history.

Use it in an audit

Reconcile the curve with orders, statements and open exposure. Mark strategy versions, risk changes and costs without reshaping the history to create an attractive picture. Past growth does not impose a ceiling on future drawdown. In the course: journals and metrics and strategy audit.

FAQ

Do balance and equity produce the same curve?

Not with open positions or other account adjustments. Identify the series definition.

Does a rising curve establish future profitability?

No. It records history and requires assessment of data, rules, costs and uncertainty.

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