An equity curve is the running total of your trading: the starting balance, plus the net result of the first trade, plus the second, and so on. Plotted in order, it is the most honest picture a journal can draw, because every trade is on it and none can be argued away.
How it is built
equity(0) = starting balance
equity(k) = equity(k − 1) + net result of trade k
Trades are placed in the order they closed. Open positions are not on the curve until they close.
What to look for
- Slope. A steady upward slope is a positive expectancy being realized. The steeper and smoother, the better, but smoothness over 20 trades means little.
- Drawdowns. The dips below a previous high. Their depth is your drawdown; their length (how many trades until a new high) is just as important for whether you can keep trading the plan.
- Flat stretches. Months of sideways equity often mean the edge is gone or the market regime changed.
- Steps. A curve made of one huge jump and long declines is a strategy that depends on rare winners. Check how much of the profit the largest trade carries.
A useful overlay
Mark the trades where you broke a rule. When those marks cluster at the start of every drawdown, the problem is not the strategy. Edgewonk calls a version of this a "Tiltmeter"; in SetupBook it is the discipline chart.
In SetupBook
The dashboard shows the equity curve for the selected account and period, with red markers on trades that carry a mistake tag. Analytics adds the "Discipline and equity" card: the same curve with the share of clean trades over the last ten trades drawn beneath it. When a period filter is on, the curve starts at the balance the account had at the beginning of that period, so it never jumps.