Are you disciplined enough to succeed in trading? Few people can definitely answer yes or no. Many traders are somewhere in the middle of the scale. There is a gauge, a meter that shows whether you're moving up or down as a trader. That gauge is your account equity. Whenever you act responsibly, it turns up, but ticks down with almost every lapse of judgment.

Most traders look at charts, but very few look at themselves. That is an oversight, since personality is a hugely important part of trading. An equity curve holds up a mirror to your performance. Professionals keep equity charts for themselves and their clients. When you start tracking your equity curve, you make a big step toward joining the pros.

Use a spreadsheet to track your equity curve. Each horizontal line reflects one unit of time, in this case a month. These columns belong in the spreadsheet:

1. Date

2. Account equity

3. 2%

4. 6%

Find your account equity on the last day of each month and type in that figure. Account equity equals all cash and cash equivalents in the account, plus the value of all open positions. Mark your account to market; your account equity is the liquidation value of your account. Repeat this procedure every month. After accumulating this data for several months, begin plotting your equity on a chart. The goal of every professional trader is a smoothly rising equity curve, flowing from the lower left to the upper right with only occasional shallow drawdowns.

Once you have accumulated a year's worth of equity data, add a moving average to your curve. A six-month simple MA will identify the trend of your equity. It will also answer an important question-when to add money to your account.

Most people add capital either after damaging losses or when they feel very confident after a string of successes. Adding money after your equity reaches a new high is emotionally understandable, but it hap pens to be a bad time to add money. We all go through cycles, and a trader who has just reached a new equity high is due for a pause or a pullback. If the moving average of your equity is rising, the best time to add money is on a pullback to the rising MA. The uptrend of the moving average of your equity confirms that you are a good trader, and a pullback shows a return to value. You buy stocks and futures on pull backs to their EMAs, so why not use the same tactic when you want to give yourself more money to trade?

Program your spreadsheet to return two important numbers after you type in that month's equity-the 2% and 6% values. They set two safety nets for your account for the month ahead. The 2% Rule limits your risk on any single trade. Once you find a trade and decide where to put a stop, the 2% Rule will give you the maximum number of shares or contracts you may trade (try to risk less if you can). The 6% Rule takes away your trading privileges for the balance of the month if your account value drops to 94% of its previous month-end level.

You may enhance this spreadsheet, depending on what you want to know and how good you are at programming. You can use it to calculate the monthly curve with and without interest. You can calculate your curve both before and after trading expenses. You need to recalculate your curve whenever you add or subtract trading capital without mixing up past percentages. The key message-start plotting your equity curve now!

Your equity curve is the yardstick of your performance. An orderly uptrend is better than a steep uptrend with deep drawdowns. Your equity curve should keep rising, and if it turns down, you have to become much more defensive in your trading.