What makes champion traders different from those who struggle?
One of the more interesting ways to ‘check-in’ on what is working and what isn’t, is to view the equity curve of those on top of the leaderboard.
You will be amazed at how few people even record their ongoing equity curve as a trader.
The truth is, your equity curve will reveal a lot about the type of trader you are, along with the trading statistics of your system.
One of the reasons many traders don’t like to track their equity curve is it makes them face reality when they are losing that they aren’t as good as they thought they were.
Despite its sobering effect on your reality as a trader, it will help you build a risk-averse trading strategy that suits your risk profile.
By seeing the gains and the periods of drawdown, you can better understand how your various trading systems work (and don’t work).
There is nothing but positives in tracking your equity curve, so if you aren’t already, then start tracking your statistics today.
1. Login to your MT4 platform
2. Left-click on the Account History tab in your Terminal window.
3. Right-click in the terminal window and then left-click on the level of history you want.
4. Once you save that file to your desktop, you can open it up and view your equity curve.
The three equity curves we will discuss today have been pulled from their closed trades history and then calculated using Microsoft excel, which takes seconds.
On Wednesday, we took a look at the current leader, Wei Wei Wang, and their equity curve, to show how they have been able to amass their excellent returns.
Since then, Wei Wei had a small pullback in their equity curve, to then push on and hit new equity highs. Wei Wei’s return is currently sitting at 113%. Please note that trading leveraged products involve risk and you can lose more than you start with.
You can see how consistent their performance is, with the equity curve rising steadily.
There appears to be a possible strategy to increase risk as the profitability increases, as noted by the larger than usual drawdown around the 56th trade this month.
Many traders build a method into their position sizing that allows them to increase their risk when in profit for the month.
This can have the positive effect of riding the momentum when your trading system is doing well, or hitting a ‘purple patch’ so to speak.
You will notice some similarities of 2nd place Sheng Yong Jiao, who has managed to move their account forward 69.2% in August.
What is interesting about Sheng Yong Jiao is the number of different Forex pairs they are trading.
In total, they have traded 17 different instruments, including:
· FX Crosses
With their equity curve showing minimal drawdown, it would stand to reason they don’t let their losses run, but instead, have a clear method of cutting their losses off short.
Equally so on the upside, they do not appear to have any huge wins.
At no point can we see a massive jump in their equity curve.
Instead, they would appear to be closely monitoring every position, cutting the losing trades short and setting sensible upside targets on their winning trades.
Here are the August trading statistics for Sheng Yong Jiao.
Sheng has a remarkably high win rate at 79% combined with an average win higher than their average loss.
These are strong statistics.
Also, you will notice their largest loss is smaller than their biggest win, indicating how disciplined Sheng is in cutting off their losing trades fast. Not only that, but their largest win highlights their ability to let their winning trades run.
In slight contrast to the first two equity curves, you will notice Haidong Liu got off to a fantastic start early on and has since levelled off.
96% of Haidong’s trades are placed on Gold with the other 4% placed on WTI Crude Oil.
In a series of 9 different trades on the 4th of August, all on Gold, Haidong managed to bank $1,153, as Gold rocketed higher.
You can see the cluster of long gold positions taken just before the sharp move higher.
These long Gold trades were then closed the next day in the $2033 to $2051 range, securing the bulk of Haidong’s returns for the month.
The equity curve gave insight into the style of trading he is using, suggesting he is a patient trader, willing to open many small trades and cut the losers off short.
And it would seem that Haidong has not been able to catch any other strong trends, as indicated by the slowly decreasing trend following his winning trades.
Here are Haidong Liu’s current closed trades statistics for August.
His win rate is closer to 50:50, but you will notice a huge difference between the average loss at just $6.03 versus his average win at $118.41.
Once again, this reiterates the fact he is willing to test ideas in the market and cut them off quickly if they turn against him.
Further to this, you can see his biggest loss is just $14.62, yet his biggest win is $305.40.
The old saying of cut your losses off short and let your profits run is working well for Haidong’s trading system.
As you can appreciate, we are only looking at the top 3 equity curves today and haven’t shown a losing equity curve.
Today’s post is all about getting familiar with the power of tracking your equity curve.
But it is important to remember that trading leveraged products does involve risk and you can lose more than your starting balance. So be sure to trade with a sensible risk management strategy that suits your risk profile.
In future posts, we take a look at how equity curves of winning traders differ to those of losing traders.
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Ashley Jessen is the author of CFDs Made Simple and Head of Marketing at ACY Securities. He has been in the financial services industry since the year 2000 and worked for some of the leading companies in the CFD, Forex and Online Trading space.