An equity curve is the running total of a strategy's results over time, plotted as a line. It answers a question no summary statistic can: not "did this make money?" but "what did it feel like to hold?"
Take every closed trade in order, and keep a running sum of the results. Plot that sum against time and you have an equity curve. On Quantustik the results are summed in R-multiples — units of risk taken — rather than dollars, which is why the chart is labelled "cumulative R". Measuring in R rather than dollars keeps the curve about decision quality instead of position size.
So a curve that climbs from 0 to +8R over forty trades is saying: across those forty trades, the strategy netted eight times the amount risked on a single trade. Every step up is a winning trade closing; every step down is a losing one.
Two strategies can finish at exactly the same place and be completely different products to own. One climbs in small, steady steps. The other spends eight months underwater, then triples in a fortnight. Identical endpoint; wildly different experience — and, crucially, wildly different odds that a real human actually holds on long enough to collect the result.
This is the whole reason an equity curve is worth plotting rather than just reporting a total. The total tells you the destination. The curve tells you the road, and the road is what decides whether you are still in the car at the end.
Our chart colours the curve red whenever it sits below its previous high-water mark. That red region is a drawdown — the stretch where the strategy has given back gains and has not yet recovered them. The deepest such dip is the maximum drawdown, and it is the honest measure of the worst pain the strategy has inflicted.
The reason we paint it rather than hide it: drawdown is where investors actually quit. Nobody abandons a strategy at a new high. They abandon it after months of red, right before the recovery — and the recovery is where the returns were. Looking honestly at how deep and how long the red patches run is the best available preview of whether you could genuinely stomach this strategy.
Two numbers to read off the red, both of which matter: how DEEP the worst dip went, and how LONG it lasted. A 20% drawdown that recovers in three weeks and a 20% drawdown that grinds on for two years are the same number and nothing like the same experience.
The most dangerous curve is a short one. Ten trades can produce a gorgeous, almost straight ascending line by pure chance, and it will look far more convincing than it has any right to. Before believing a curve, check how many trades built it and what the t-statistic says about whether the slope is distinguishable from luck.
The second trap is that a backtested curve and a live curve are not the same kind of evidence, even though they look identical on screen. A backtested curve was drawn by someone who already knew how the story ended and could adjust the strategy until the picture looked good — that is overfitting, and it produces spectacular curves as a matter of routine. A forward, live curve cannot be tuned after the fact. Always check which one you are looking at.
Third, an equity curve hides what it does not contain. Open positions that are deeply underwater and have not been closed do not appear on a closed-trade curve at all. If a strategy quietly holds its losers forever, its curve can rise smoothly while the account bleeds.
The running total of a strategy's closed-trade results over time. It shows not just whether the strategy made money, but the path it took — including every stretch where it lost money and had not yet recovered.
Because R (risk units) normalises for position size, so the curve reflects the quality of the signals rather than how large the bets happened to be.
They mark drawdown — periods where the cumulative result sits below its previous peak. We colour them deliberately, because drawdown is where investors actually give up on a strategy, and it deserves to be visible rather than smoothed away.
Only if it is long and generated live. A short curve, or one produced by a backtest that was tuned until it looked good, can be perfectly smooth and mean nothing at all.
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Educational research only — not investment advice.