Skip to content
GetProfitable
Search
Dictionary

Underwater curve

A plot of how far below the high-water mark the account sits at every point, showing depth and duration of every decline at once.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

The underwater curve touches zero at each new equity high and dips below it in between. It is the same data as the equity-curve with the growth removed, and it is far more informative about what holding the strategy felt like.

Three readings matter. The deepest trough is max-drawdown. The widest gap between two zero-touches is the longest drawdown-duration, often more discouraging than the depth. And the proportion of time spent below zero is flat-time - many profitable systems are underwater 60-70% of the time, because new highs are by definition rare.

This is the chart to look at before committing to a strategy, and the one most marketing material omits. The ulcer-index is essentially a summary statistic of it.

Related: equity-curve, drawdown-duration, flat-time, ulcer-index

Educational only, not advice. Spotted an error? Post in Site Feedback.