What is the capital curve?

Capital Curve is a graph showing a business account value over time. In its simplest form, the overall trend in the success of the merchant and strategy of the merchant shows. It can also be used to monitor how much money the trader has to move to various investments and remember to take into account the margin requirements.

The production of the capital curve is a very simple process. The X -axis represents the overall value of the selected set of investment, most often everything a person has currently invested. An alternative selection would be all the investments that the person made using a specific technique or system; This would allow multiple systems to compare. The Y axis represents time, usually with the number for the end of everyday trading. Some traders also look at the shape of the curve rather than just its direction. The smooth up curve will indicate a permanently balanced and successful approach. A curve that moves up overall but is very jagged and moves up and down can indicatethat positive results may be the result of happiness than judgment and may indicate an unnecessarily risky strategy.

Curve of equity can also be used to explore other aspects of investment than simply total profitability. For example, the investor can look back at the chart showing the value of a business account in the last six months. Instead of simply looking at the overall trend or final position, it could try to find the lowest value the account reached.

This is significant because many traders borrow money for investment known as margins. If the investment reduces the value, the trader may be obliged to give more money to protect against the loan. Analysis of the Capital Curve in this way may reveal that a strategy that seems to be generally successful may not be practical in the future because it requires too much available from the merchantHor cash.

There is a significant limitation of the capital curve. It only shows changes in the value of investment and usually does not take into account when the trader actually decided to sell the appropriate assets and cash. This means that it lacks insight into the key part of the investment: not only choosing the right investment, but selling at the right time. In fact, the sharp curve of its own capital may seem a great sign, but it may also indicate that the total value is obtained from an unsustainable peak or bubbles and is exposed to the risk of suddenly falling. This could mean that investment strategies may not be as successful as it seems.