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growth graph equity line

gmfx
May 25 2011 at 22:58
posts 8
I don't understand how the equity line is supposed to be calculated in the growth graph.
Can anyone help?
Thanks

speki
May 28 2011 at 19:30
posts 735
Equity is your balance plus minus profit or loss on your open trades.
Suppose you have 1K balance and +100 profit on open trades (that's 10% of the balance).
Equity would show 110%.
Savvy?

Surround yourself with people whose eyes light up when they see you and who have no agenda for your reform.
gmfx
May 29 2011 at 12:57
posts 8
Thanks for your reply, speki.

The concept of equity is very clear.
But that's not my problem.

My problem is with the growth chart.
It shows the line of growth of the account (in red) and the line of growth of the equity held for that account (in yellow).
The problem is that the equity growth is definitely very different from what this graph seems to indicate.
For instance, my account shows a growth of about 110% (which makes perfect sense, since the account started at $50k and has now reached about $105k so +$55k), however it also shows a growth of equity of about 60% when my equity is next to $60k. Now this doesn't make any sense: in this case the equity growth is no more than 20%. So where does that value of 60% come from? One might think, ok that's not the growth in equity, it's only how much equity you're holding against your balance. But that's also not possible because it would have to start at 100%, instead it starts at 0% just like the balance growth and it grows along with it although following the ups and down of the equity (but how exactly?).

In conclusion, the growth chart only gives an indication about the balance growth, while the equity growth line simply doesn't make any sense (to me now).

I'd be grateful if anyone form myfxbook could explain this.

Many thanks

Ethan (Staff)
May 29 2011 at 14:37
posts 1400
The growth's equity line is consistent with the balance's equity line in percent. For your last point, equity is at 56.29%, so if referring to the current growth, it is the 106.59%*56.29%=~60% which is what is seen in the chart.

Let me know if it's still unclear.

gmfx
May 30 2011 at 12:03
posts 8
Hi Ethan,

Thanks a lot for answering this.

However, I have to say this doesn't make a lot of sense to me: if this was right the equity line should start at 100%, right?
Why does it start at 0%, then?

I would expect any growth chart to start at 0%.
But what's the purpose if it plots a figure of ~60% when the actual increase is only ~20%?
That's a very large difference and the value that would be most informative about the system is the ~20% growth in equity, rather than the fact that equity is at ~60% of account balance in that moment (while it's still unclear why it starts at 0% instead of 100%)

Even worse: when the equity growth went in the negative (meaning my system had open trades losing more than it had earnt) the equity growth indicates a positive value of about 10% while in truth I had an equity of ~$35k, thus making a loss of ~30% on $50k.

I understand the growth line must be progressive and independent of the amount actually in the account, but it should also be indicative of the actual increase or decrease of the amount it tracks, be it the account balance or the equity held for that account.

I'm not expecting the MyFXbook team to change the way charts are displayed, but I must say I'd appreciate much more a growth chart that plots the actual growth of the equity as well as that of the balance of a given account.

I think this would give better indication to all traders.

Please correct me if I'm wrong.

Thank you :)

Ethan (Staff)
May 30 2011 at 12:10
posts 1400
That's simply a different visual plot of the same data 😄

The equity line is plotted as a percentage of the growth at each data point which would explain why it starts at 0% - the growth starts at 0% and 100% (equity) of 0% is still 0%.

In any case, I will forward your request to the development team for review.

Thanks.

gmfx
May 30 2011 at 14:41
posts 8
Ok, thanks for making this clear, Ethan, but still how meaningful is it?

It leads us to compare an increment (that of the account balance) not with the increment in equity for that account, but with the portion of equity held for that account scaled down by the increment of the account!! (perverse!)

What information do we gather from such comparison?

It's not just useless, it's misleading ... think about it ... (ultimately it's dimensionally wrong: we must compare increments with increments)

If you want to check the growth of a system as an indication of its performance you want to look at the increment (positive or negative) it has produced on the account balance AND on the equity.

If I have a 20% increment in equity, I don't want to read a chart that shows my equity at 60% of the increment on balance!
If my trading system produces a 30% loss in equity, I don't want to see a chart that plots a positive figure of 10% for my equity 'growth'!

Do you see my point?

Thanks for your response and for submitting this to the development team

Ethan (Staff)
May 30 2011 at 15:02
posts 1400

gmfx posted:
    Ok, thanks for making this clear, Ethan, but still how meaningful is it?

It leads us to compare an increment (that of the account balance) not with the increment in equity for that account, but with the portion of equity held for that account scaled down by the increment of the account!! (perverse!)

What information do we gather from such comparison?

It's not just useless, it's misleading ... think about it ... (ultimately it's dimensionally wrong: we must compare increments with increments)

If you want to check the growth of a system as an indication of its performance you want to look at the increment (positive or negative) it has produced on the account balance AND on the equity.

If I have a 20% increment in equity, I don't want to read a chart that shows my equity at 60% of the increment on balance!
If my trading system produces a 30% loss in equity, I don't want to see a chart that plots a positive figure of 10% for my equity 'growth'!

Do you see my point?

Thanks for your response and for submitting this to the development team


I see your point, but the chart is a cumulative growth/balance plot.

The equity plot is relative to the growth and cumulative, so it's useful to see over time how it diverges/converges from the growth/balance.

I'm not sure why you think it's useless, as what you're asking is the same plot, only in absolute terms, not relative 😄.

In any case, as mentioned before I've already forwarded your suggestion to the development team. Your feedback is much appreciated!

speki
May 30 2011 at 16:17
posts 735
Man, for a year and a half, I thought this was useful and informative. Especially the convergences / divergences, equity crossing / touching the main growth curve. Now I have to learn it's perverse and useless. I need my head checked ASAP.

gmfx, could we keep shtum about this? It's gonna be fun to watch the other few thousand members fooling themselves with those useless equity curves 😁 😁 😁

Surround yourself with people whose eyes light up when they see you and who have no agenda for your reform.
gmfx
May 30 2011 at 16:22
posts 8
It remains that the current growth chart instead of comparing balance growth with equity growth, compares balance growth with the total value of equity proportion of balance scaled down by the balance growth ... meaningful?

I'm really not sure of the use of this, of one thing I'm sure: it's misleading to plot these two lines together in what's called a growth chart.

From a growth chart I expect to see how a trading system has performed on a given account in terms of (relative) balance growth and (relative) equity growth, if either goes in the negative it must show so.

With a bit of (tedious) math, just to make thing crystal clear:

b = balance [$] = b(t)
e = equity [$] = e(t)
t = time [days]
d = increment (delta): dt = t2-t1, db = b(t2)-b(t1), de = e(t2)-e(t1)

daily balance growth: b' = db/dt
daily equity growth: e' = de/dt
relative balance growth: b'/b
relative equity growth: e'/e

equity proportion of balance: e/b

Why not plot b'/b with e'/e instead of b'/b with e/b*b'/b?

Note that b is very different from b'/b and e is very different from e'/e.
Besides, in the chart of b with e, deposits and withdrawals are also taken into account, while they wouldn't show in the chart of b'/b with e'/e.

Thanks again and look forward to the response from the development team

gmfx
May 30 2011 at 16:32
posts 8

speki posted:
    Man, for a year and a half, I thought this was useful and informative. Especially the convergences / divergences, equity crossing / touching the main growth curve. Now I have to learn it's perverse and useless. I need my head checked ASAP.

gmfx, could we keep shtum about this? It's gonna be fun to watch the other few thousand members fooling themselves with those useless equity curves 😁 😁 😁


Speki,

I'm not so sure about your sense of humour.
I'm simply pointing out how in the growth chart my equity appears to perform way better than it actually does if the equity line is accepted as equity growth, as the title of the chart suggests.

I have a system giving an equity increasing by 20% and a chart plotting it at 60%.
Worse, when equity goes into a loss of 30% this chart still shows it in the positive by 10%.

I do find this misleading, if you don't good on you, but please respect my voicing my doubts.

speki
May 30 2011 at 17:46
posts 735
Ah-ha. I think we're looking at things from a slightly different angle. But it's diversity that makes the world beautiful, so no problem with that. How about the new curve(s) beside the existing ones? Not instead of the old, well-known ones.

I think I understand the difference between your suggestion and the current e-b composite graph, just I don't get where would this extra information help us with trading? I'm just asking, not saying it wouldn't. I can't withdraw my equity, I can't pay the bills with it, it's purely virtual, that's why (I tend to think that) equity itself, without the balance / growth component, is hard to interpret. In other words, the goal is to have the balance increasing with equity as close to 100% as possible.

Then again, I might be mistaken!

Surround yourself with people whose eyes light up when they see you and who have no agenda for your reform.
gmfx
May 30 2011 at 20:41
posts 8
Hey speki,

I'm only a newbie trader trying to understand the use of these tools and I give my feedback hoping that can help improve things.
I think myfxbook offers a fantastic platform and we can only be grateful they made it freely available.
Surely they make it for money and I hope they can keep making more by offering even better tools.

So, obviously I understand thousands have been and are using the charts as they are and making the most of them.
In my small experience I found that the growth chart in particular offers some reasons to doubt the way it's designed.
Lately, I've found myself looking increasingly to the balance chart because I didn't know what to think about what was actually being plot as equity in the growth chart. Finally, I decided to ask the community, and the answer has been revealing.

From Ethan explanation, the growth chart plots equity in such a distorted way, that I find it really difficult to make much sense out of it.

Basically, equity is plot as a percentage of the account balance scaled by its growth (!?!).

So if you have zero growth you have equity at zero (!), if you have 100% growth you see your equity at the rate of its portion of your account balance, if you have 10% growth you have equity at one tenth of that value and so on.
Meaningful? what indication does this give us? how do we interpret this in terms of efficiency of a trading system?

Besides, the chart title being growth, leads one to think that the equity line should also represent some sort of growth of the equity. Absolutely not so! if you do, you may think of a trading system as way more reliable than it actually is.

As I said previously, I'm not expecting these charts to be changed only because I find it awkward to interpret them.
But from what Ethan said, it sounds as if this chart is indeed plotting two things that I wouldn't dream to put one next to the other in my wildest dreams ... (ok, let's not dig here ...)

I think if the chart will eventually get redesigned (which I hope, but I doubt), the current design won't be missed much at all.
In fact, because of how it's built, the equity line is often so close to the balance growth line, it's not really showing any interesting information. The crossings and convergences you can see them magnified and in more detail (because not dampened by the balance growth factor) in the balance chart. What you'd compare in the new growth chart would be the daily growth in balance and in equity, so much more informative and indeed quite different from the balance vs equity amounts chart.

If you want to track a history of the equity as a portion of an account balance, that can have it's own dedicated chart (starting at 100%), just like the profit does (starting at $0).


About your point regarding equity being 'purely virtual', I have to disagree (sorry).
My understanding (please do correct me if I'm wrong) is that we can withdraw funds from an account up to a certain portion of the equity held (provided this is not greater than the account balance).

So I regard equity as one of the most important values to monitor in a trading system, because I think it's there that accounts get blown down. No matter how much the system has been able to accumulate, if it gets too exposed with open trades, it'll be forced to a halt.

And that's what's worrying me in the system I'm testing.
And that's why I want to monitor more closely the performance of this system in terms of equity and why ultimately the equity line in the growth chart doesn't give me any valuable information.

Of course, I will be more than happy to be shown ways to make use of such a strange indicator as the one plotted by the equity line in the current growth chart.


speki
May 30 2011 at 21:49
posts 735
No worries, gmfx. I think it's a good thing that you share your observations and that you suggest improvements. 😄

How do we interpret the current equity curve? Simple. If it's close to the growth curve, it's good. If it's going up and down like a pro's underwear, then the system is risky. Like this one:

https://www.myfxbook.com/members/bpmapan/bp-trend3/93756
I wouldn't say it's bad, but it's definitely risky. He's a lucky guy!

Yes, I agree, equity is a very important thing. You must keep your exposure in mind because if you are overleveraged, the usual wild swings could finish you in no time. But you can see your equity % on the current chart (or better, updated on a tick by tick basis, in your trading program). Equity here gets updated only when you have some activity on your account (trades opened, closed). But, the unrealised profit or loss, is virtual, until you close the trades.

This is what I don't fully understand:

<i>What you'd compare in the new growth chart would be the daily growth in balance and in equity, so much more informative and indeed quite different from the balance vs equity amounts chart.</i>

Suppose you have a trading logic or system or any set of rules. You wait for a signal, open the trade then the market either goes your way and you make a profit or it goes against you and you take a loss (well this was a bit of oversimplification since you can finish at breakeven too). Anyway, equity returns to 100% once the trade is done. So basically there's no 'equity growth', because you want to bank your profits. Again, this was a bit of simplification, if you're a position trader trading off the weeklies, you can monitor your daily equity progress, but again, you can see the same information from the current curve.

Sorry if I fail to understand your logic, I know I'm not the quickest of cats and you definitely have a unique approach. I will give it some time to think it through again.

Surround yourself with people whose eyes light up when they see you and who have no agenda for your reform.
speki
May 31 2011 at 06:18
posts 735
gmfx, I gave some thought to this matter but alas I still don't see any advantages of a separate equity curve. This does not mean that you're wrong or your idea is wrong, I might be missing something - so if you can give some examples how do you think this extra information would be useful, then thank you very much.

laters!


Surround yourself with people whose eyes light up when they see you and who have no agenda for your reform.
gmfx
Jun 01 2011 at 00:17
posts 8
Hey speki,

A day away brought some advice.

Indeed, I must say I have neglected some important details when I wrote down the math.
And recognising that means I now understand why the MyFxBook team has designed the Growth chart this way.
On the other hand, I must say I still regard it as potentially misleading.

So what have I realised that wasn't right in the math?

Well let's have a little repeat for sake of clarity:

gmfx posted:

b = balance [$] = b(t)
e = equity [$] = e(t)
t = time [days]
d = increment (delta): dt = t2-t1, db = b(t2)-b(t1), de = e(t2)-e(t1)

daily balance growth: b' = db/dt
daily equity growth: e' = de/dt
relative balance growth: b'/b
relative equity growth: e'/e

equity proportion of balance: e/b


Now, what the Growth chart plots, is not b'/b but the cumulative amount of b'/b since t0 (start) up to a given day t: sum(b'/b).
So this was my mistake.

Let's add this definition:
cumulative balance growth to date: sum(b'/b) = sum(b'(t0)/b(to), ... , b'(t)/b(t))

Now it's easy to see why they decided to plot this cumulative growth in the account balance towards the portion of equity of the balance and even why they decided to scale this by that amount.

In fact, while the account balance can reach (hopefully) many times above 100%, the portion of equity held by the balance will supposedly hardly ever go too far higher than that. Hence, why they must have decided to scale the equity portion of balance by the balance cumulative growth. This dampens the equity line when balance cumulative growth is below 100% (<1) and amplifies it when it's higher (>1).

But I now see why (and that's thanks to you, speki and Ethan too).

If there were no funds added or withdrawn in the course of trading (like in demo accounts), the Growth chart would be nothing else but a distorted view of the Balance chart. Qualitatively they're the same, but the Balance chart is quantitatively more accurate.

When the trader adds and withdraws funds from the account, however, the Balance chart becomes confused and it's difficult to gather a clear picture of the performace of the trading system.
The Growth chart (however 'perverse' and potentially misleading it may be) screens away all these ups and downs and renders a picture qualitatively similar to what the Balance chart would be without the funds added and withdrawn.

Yes, ok we knew that before, but the point is that I now have figured out what's being plot and why.
And this solves my initial confusion and doubt about potentially misleading interpretation of the chart.
Which is a good result.


I still would find useful a chart plotting the equity portion of balance undeformed (e/b tout court, starting at 100%), and perhaps compare that with the cumulative equity portion of balance, sum(e'/e), as that would give us an understanding of how the system has performed in terms of equity: we would see when the equity has reached a certain portion (maybe 100%, maybe 10%, maybe 110%) of the account balance and we would be able to compare that with how the system has managed the open trades and the gain/loss in equity (proper actual equity growth).
This chart would be independent of funds added and withdrawn too and would also help avoiding being misled by interpreting the 'equity line' in the Growth chart as equity growth.

In my case, I would see the equity portion line hit +60% while the equity growth hits +20% or more extremely, when the latter hits -35%, the former is hitting +10%.

Yes, I believe that might help.

But I suppose, there would also be a myriad of other charts that surely many traders would find useful.
So I guess, I'll have to just be content of my gained understanding of what the current charts display.


Once again, thank you speki and Ethan.
I hope other readers found this topic of some interest too and who knows maybe someone in the development team also thinks this is worth considering.



engineofdeath
Apr 13 2018 at 07:12
posts 1
Hello!
Can you please tell me, is Growth chart working fine for me?
https://www.myfxbook.com/members/engineofdeath/mt5-17016249/2479290

I lost my first deposit (105 usd), and then I made another 100 usd deposit.
Now I have 290 usd in the account, but 'Equity Growth' and 'Growth' shows -98%.

Thank You!

Cloudballs
Apr 13 2018 at 12:24
posts 12
I don't think it takes into account deposits

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