Equity in trading is a measure of the current value of a trader’s assets, taking into account open positions. Simply put, it is the amount of funds in the trader’s account if he were to close all positions right now. Equity changes in real time depending on the profit or loss of open trades.
Equity = Account Balance + Current Floating Profit/Loss
Basic criteria for good equity
Smooth uptrend: The stock chart is moving steadily up, without sharp drops or jumps. This indicates that the trader is avoiding large losses and making consistent profits.
Small drawdowns: Even if temporary losses occur, they are insignificant compared to the overall capital gains. Small and infrequent drawdowns are considered normal and even inevitable, but it is important that they are compensated quickly.
Low volatility: Changes in stock prices occur with relatively low volatility, indicating effective risk management and prudent trading.
Absence of sharp declines (“picks”): The stock chart should not show strong and sharp declines, indicating excessive risk-taking leading to substantial losses.
Why “beautiful equity” is important?
Stability: Steady equity growth indicates the reliability of a trading strategy or the skills of a trader. Such strategies are more credible to investors.
Risk management: Beautiful equity usually indicates good risk management, which is critical for long-term trading success.
Emotional stability: For the trader himself, beautiful equity reduces psychological pressure because there are no sharp losses, which helps maintain confidence and discipline in trading.
Beautiful equity is, in fact, the ultimate goal of an asset manager, as it represents stable, predictable and manageable capital growth with minimal losses.
If your trading results in beautiful equity
When your trading results in nice equity. You can take greater leverage. For example: your annual result: 6% max drawdown and 20% profit.
You take 3x leverage if you consider 20% drawdown acceptable (20% because we are hedging and maybe the drawdown in the future will be worse than before). and get 60% profit.
This is a dream for the absolute majority of investors, because it is not about some luck when you bought BTC and it grew 10 times, and then bought EOS token and it fell 10 times, but about stable capital growth over hundreds and thousands of transactions.
And people who value peace of mind can avoid leverage and additional risk and continue to enjoy moderate but steady capital gains.
Bottom line. There are a lot of strategies out there. But what was before and after this area on the stock chart will not suit you at all, because there we see a noticeable drawdown. It is not difficult to find a profitable strategy, but it is difficult to find those that give a nice equity.
And in them the competition is incredible, they have already found a huge number of people and teams and the profitability there is constantly falling. And those strategies that are pumping like waves in a storm have much less competition and have been working for years.
