The equity curve: look beyond the final number
Drawdown, recovery and cash flows explain more than a smooth-looking line.
Start with what the line measures
A balance curve normally records realised results. Equity also includes open-position profit or loss. A rising balance can therefore coexist with a large floating loss. Before comparing two charts, establish which measure each uses, the account currency and the observation times.
A loss changes the recovery calculation
If an illustrative AUD 10,000 account loses 20%, AUD 8,000 remains. Recovering the AUD 2,000 loss requires a 25% gain on that smaller amount. A 50% loss needs a 100% gain to recover. These are arithmetic relationships, not predictions that recovery will occur.
The interactive chart on our homepage lets you explore that relationship. It is an educational scenario, not Liquidity Labs performance, a backtest or an expected return. Its three points do not represent actual trades or a period of time.
Ask what has been left out
Deposits can make an account balance rise without a trading gain. Withdrawals can make it fall without a trading loss. Fees, swaps, commissions and currency conversion also affect the result. A useful performance review reconciles those cash flows rather than treating every change as strategy profit.
Understand the path
The final return alone cannot describe the deepest decline, time spent below a previous peak or concentration in a few trades. Look at the sample period, number of trades, open exposures and execution conditions. Backtests use assumptions and do not establish what a connected broker account achieved.
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