An Equity Curve is a time-series plot of an account's cumulative equity over time, with each point representing the account's total value (closed P&L plus any open floating P&L) at that moment. It is the single most informative visualization in trading because the shape of the curve reveals properties no headline statistic captures: streakiness, regime dependence, hidden tail risk, and the difference between a system that grinds steadily upward versus one whose returns come from a few outlier trades.
Formula
There is no single formula — an equity curve is just a running sum:
Equity at Time T = Starting Balance + Sum of All Closed P&L Up to T + Open Floating P&L at T
Plotted with time on the X axis and equity in dollars (or as a percentage of starting capital) on the Y axis. Most platforms also offer a log-scale version for accounts that compound over long periods.
Worked example
You start with $10,000. After ten trading days the closed P&L sequence is +$200, +$150, −$300, +$400, +$250, −$100, +$180, +$320, −$250, +$150. Running equity reads: $10,200, $10,350, $10,050, $10,450, $10,700, $10,600, $10,780, $11,100, $10,850, $11,000.
Plotted, the curve climbs steadily with two minor pullbacks — a healthy shape. Compare that to a curve where one of the trades was +$2,000 instead of +$400: the visual jumps, and removing that one trade collapses the rest of the curve into mediocrity.
Why it matters
A smooth, upward-sloping equity curve indicates the strategy's edge shows up consistently across many trades. A curve that climbs in stair-steps (long flat stretches punctuated by single big trades) usually means the system depends on rare fat-tail events and will look broken during the gaps between them. The Trader+AI journal overlays the curve with max drawdown shading so weak periods are visible at a glance.
Common pitfalls
Equity curves built on closed-trade balance only — ignoring open floating P&L — look smoother than reality because deep underwater positions are hidden until they close. Always plot the mark-to-market series. Also, a curve that looks beautiful over 100 trades on one instrument can fall apart over the next 100 — past curve shape is not future curve shape.