Understanding a Basic GSB Result
Learn to read equity curves and key performance statistics
- Read and interpret an equity curve chart
- Understand key statistics: Net Profit, Max Drawdown, Win Rate
- Identify signs of a promising result vs a poor one
- Know what to look for at a basic level before deeper analysis
Video coming soon
Andrew will record this lesson video
The Equity Curve: Your First Look
The equity curve is the most important thing to look at when evaluating a trading system. It shows hypothetical account growth over time if you had traded the system historically.
What a Good Equity Curve Looks Like
Promising Signs
- • Upward slope — The line trends from lower-left to upper-right
- • Relatively smooth — No wild swings or massive drops
- • Consistent growth — Gains are spread across the time period
- • Recovers from dips — When drawdowns happen, the system bounces back
Warning Signs
- • Flat or downward — No growth or losing money over time
- • Steep cliff drops — Sudden, large losses
- • All gains at the end — Profit only in the final portion of the test
- • Too few trades — A small sample size is unreliable
Key Statistics Explained
Below the equity curve, you'll see various statistics. Here are the most important ones for a beginner to understand:
1. Net Profit
The total profit or loss over the entire test period. A positive number is obviously required, but bigger isn't always better—you also need to consider the risk taken.
2. Max Drawdown
The largest peak-to-trough decline during the test. This tells you the worst losing streak the system experienced. Lower is better. A system with $10,000 profit but $8,000 max drawdown is riskier than one with $5,000 profit and $2,000 drawdown.
A good starting guideline: Look for systems where Net Profit is at least 2-3x the Max Drawdown. If a system has $6,000 profit but $5,000 drawdown, that's a risky 1.2:1 ratio. If it has $6,000 profit with $2,000 drawdown, that's a healthier 3:1 ratio.
3. Number of Trades
How many trades the system made during the test. More trades generally means more statistical reliability. A system with 500 trades is more trustworthy than one with only 20 trades. For day trading systems, you'll typically see higher trade counts.
4. Win Rate (Win %)
The percentage of trades that were profitable. Note that win rate alone doesn't determine success—a 40% win rate can be profitable if winners are larger than losers. Don't obsess over this number; the equity curve tells you more.
Don't Over-Analyze Yet
At this stage, you're just learning to read results. There are many more advanced analysis techniques (Monte Carlo, walk-forward testing, etc.) that experienced users apply. For now, focus on:
- Does the equity curve trend upward?
- Is the max drawdown reasonable relative to profit?
- Are there enough trades for the result to be meaningful?
If a system passes these basic checks, it's worth exploring further. If it fails, move on to the next one.