Critique a Perfect Equity Curve

[Fairman]

Critique a Perfect Equity Curve

A screenshot shows an equity curve rising smoothly for 24 months, with no losing month. The caption says "consistent profits, low risk." Apply a few checks.

Probability check. Suppose a good strategy has 60 percent winning months. The chance of 24 winning months in a row is 0.6 to the power of 24, which is about 0.0005 percent, roughly 1 in 200,000. A smooth curve like that is not what honest, independent monthly outcomes look like.

What can produce it? Strategies that cut winners short and let losers run, hiding losses until they explode. Martingale and grid systems, which add size to losing positions. Selling options or insurance-like exposure. Account selection, where one account out of many appears. Or editing.

Check the axes. Does the chart have dates and a scale? A curve that rises 15 percent over two years drawn on a stretched axis looks dramatic.

Check what is missing: drawdown statistics, trade count, position sizes, largest loss, and whether deposits are mixed in. Floating losses on open trades may be missing, if the curve shows balance instead of equity.

Check the verification. Is it an independent tracking service, linked to the broker, with account number and real-time updates?

A smooth curve is a reason to ask more questions, not fewer. The risk may be sitting outside the picture.

Real strategies have drawdowns, and honest records show them.

Exercise: look at any equity curve you admire, and list three things it does not tell you.