Charting Up Your P/L and Taking a Critical Look at Your Equity Curve

There's valuable insight to be gained by charting up your cumulative P/L over a period of time. You may or may not already do this.

How accurate a picture do you have of the last 3 months of your trading? Do you remember when your slumps occured? What about your really good days or weeks? Do you recall a week or two in which you were up and down the whole time? Do you know whether you've been up, down, or have hoverred around baseline over the past year?

The manual way to do this is to gather your P/L statements from each trading day, and run a cumulative calculation of each day. So if you made 200.00 the first day and the next day lost 350.00, your net cumulative P/L for the two days would be -150.00.

The chart below represents about 3 months of trading. The x-axis represents the date and the y-axis represents cumulative P/L. Each dot represents a trade. Note that on days with small P/L ranges, many dots overlap eachother.


This trader is doing something right. For one, he has been cumulatively profitable after trading every day for the past three months (9/1/06 to 12/7/06). He steadily makes money and has no swings. We can tell from the chart that he has handled his drawdowns well and recovered from every single one of them (highlighted in yellow).

Until October 5th, his trading was generally break-even. I want to know what changed on October 5th. I might even run analysis on the two weeks prior to 10/5 and the two weeks after 10/5 and look for the significant differences so I can pinpoint exactly what changed (other than P/L). I also want to know what happened on November 14th, the day he made the most profit in the shortest amount of time.

Here's a different example...


And another one...


This trader got off to a poor start and had an incredible improvement. Although, looking at the entire picture he's taking form as someone who's had a few relatively substantial swings in P/L.

Assuming the market dynamic didn't dramatically change during this period, we can conclude that his trading or his emotions, or possibly both, are at fault. Just for clarification, by "market dynamic" I am referring to how a particular market trades---namely the depth of market (# of bids/offers at each price increment), the volatility, and the average daily range. This guy happened to be trading the YM, ER, and ES, so...

There's one last thing I noticed with this graph. He seems to have either conscously or subconsciously identified levels of support, in terms of his P/L track. I drew red lines in these places. In both instances, when he broke below that level, things got worse at an accelerated pace.

In summary, this is a conceptually simple graph that can tell us a lot.



© Copyright 2007 David Adler
All rights reserved

All analysis generated with the TraderDNA Analyzer.