Equity Forex (deposit curve in the Bektest) reflects the dynamics of the growth of the deposit since the start of the trading system. Its uptrend is a reason for a deeper analysis, since not always the perfect climbing equity is a sign of a stable and productive strategy. By the nature of drawdowns and growth rates, a preliminary conclusion can be made about the type of idea underlying the trading advisor. Each character determines the appropriate nature of the deposit curve individually in accordance with risk management, but we will describe further the general principles of its construction.
Equity Forex: principles of construction
- Equity Forex should be ascending and as straightforward as possible. Abrupt jumps upwards can be mistaken for a high system performance, in fact, be an accident or a reaction to an anomaly. The presence of drawdowns is not a problem if they are systematic (that is, they are an integral part of the system). An example of optimal equity in the image below.
- Drawdowns and shelves (horizontal sections) should be as short as possible. Short drawdown shows the high stability of the system, its ability to recover. Single deep drawdowns and rises may not be a problem (anomalies), but may give an error for statistical results. It is important to note that drawdowns and shelves on a real account will only increase.
- Each subsequent peak value of forex equity should be higher than the previous one. From this it follows that in each subsequent segment of trade, the system generates more income than loss. In horizontal areas, manual adjustment of settings is possible with the aim of optimization.
- The most important part of Forex equity is the last year (or months – depending on the nature of the strategy). It is in this area that the deposit curve should be as ascending and smooth as possible. The linear nature of equity is an example of how the system maintains its effectiveness.
If in the last segment the deposit curve goes horizontally or is gradually bent down, this is evidence that the system will soon become unprofitable and requires its re-optimization to adapt to new market conditions.
Equity Forex is a reflection of the nature of the strategy, because of its differences you can judge the tools used. For example:
- step growth of the curve indicates that this strategy uses long Take Profit orders (long step up) and short Stop Loss (closing a position at the slightest turn of equity down);
- this chart indicates work without a stop-loss, and an almost horizontal chart speaks about the strategy of a pipsman working for small amounts;
- on this chart is an example of scalping strategy with long stops. Frequent steps indicate the frequency of opening a position, and the characteristic sharp drawdown is the triggering of stops;
- a sharp deep drawdown with a high frequency of occurrence indicates the application of the Martingale strategy.
These examples make it possible to form an overall picture of the behavior of the trading system for equity Forex. Deeper analysis is possible only on the basis of statistical data after unloading Bektest.