When analyzing a sample of trade results, it serves to measure the degree to which a certain trade outcome varies from previous outcomes included in the average (arithmetic mean) of all trade outcomes. The larger the standard deviation, the more fluctuation there is in the equity curve. Also called the "root mean square" (RMS) deviation, it is considered the most useful and important measure of dispersion which has all the essential properties of the variance.
The standard deviation is the square root of the variance. To calculate the standard deviation, the mean of a data set is calculated first, and then the squared deviation from the mean is computed, summed together, and divided by n-1.