An equity curve shows the value of a trading account graphed over a period of time. It gives a visual performance measure of a trading system and is used by many traders as a measure of the reserves above margin requirements needed to trade a system. Investigator shows two types of equity curves: a true equity curve and an adjusted equity curve.
For the following examples, assume that all trades are long and assume that slippage (if any) has been applied to your entry and exit prices.
The true equity curve is calculated as follows:
Start with your initial capital. When encountering your first entry date, subtract from your initial capital the entry price of the trade multiplied by the number of shares traded. Then subtract any entry commission if applicable:
Initial Capital = Initial Capital - ((Entry Price * Num Shares) - Entry Commission)
When you exit the trade, add to your capital the exit price multiplied by the number of shares traded. Then subtract any exit commissions if applicable.
Initial Capital = Initial Capital + ((Exit Price * Num Shares) - Exit Commission)
Repeat for each trade.
The adjusted equity curve is calculated as follows:
(To be added)
Note that the number of open trades parameter for the equity curve applies. If you specify that you only want 2 open trades at a time, Investigator will not enter any new trades until you only have one (or less) open trade(s). For example, if you are testing on a daily basis and you have two open trades and a trade closes on Tues. July 8, a new trade will not be opened until Wed. July 9 at the earliest. This is due to the fact that some exit systems, such as a trailing stop loss or a GTI exit, will close you out during the day Tues., July 8. Investigator cannot predict at what time Tues. your trade closes, so it cannot open a new trade until Wed.