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growth graph equity line
Iepriekšējās 1 2 Nākamais
gmfx

Biedrs kopš Apr 09, 2011  8 ieraksti gmfx May 30 2011 at 16:32

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 lol lol lol


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

Biedrs kopš Nov 18, 2009  735 ieraksti speki May 30 2011 at 17:46
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

Biedrs kopš Apr 09, 2011  8 ieraksti gmfx May 30 2011 at 20:41 (labots May 30 2011 at 20:46 )
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

Biedrs kopš Nov 18, 2009  735 ieraksti speki May 30 2011 at 21:49
No worries, gmfx. I think it's a good thing that you share your observations and that you suggest improvements. smiley

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

Biedrs kopš Nov 18, 2009  735 ieraksti speki May 31 2011 at 06:18
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

Biedrs kopš Apr 09, 2011  8 ieraksti gmfx Jun 01 2011 at 00:17 (labots Jun 01 2011 at 00:37 )
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

Biedrs kopš Mar 31, 2018  1 ieraksti engineofdeath Apr 13 at 07:12
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

Biedrs kopš Apr 02, 2018  12 ieraksti Cloudballs Apr 13 at 12:24
I don't think it takes into account deposits

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