A community based automated forex system such as Zulutrade is extremely powerful, because it offers so much choice and so many analysis tools to a trader. However, its strength is also a potential weakness, because in its collection of nore than 10.000 signal providers are some really bad, poor quality trading systems. Choosing the best signal providers for your own account is a matter of balancing your greed (doesn't that motivate every trader?) and sound risk management. This page will give you some helpful pointers so that you can get the best providers without getting into excessive risk. Study all these factors, and choose providers that fit your personal risk profile. If you are a beginner, go for the lowest risk possible (sorry, nothing is totally risk free!)
Step One - Equity Curve
Start by looking at equity curves. When you open the list of providers (click on the "Performance" tab), you will see that each one has a small picture of an equity curve. You need to pick one that has a linear curve, starting in lower left corner and moving steadily up to the top right corner, without big valleys and sharp peaks. Open up that provider, and have a closer look at the larger curve, so that you get a good idea of the consistency of the trader in his trading style.
Step Two - Drawdown
The general screen will give you a percentage drawdown (Max DD %) , and the detail for each provider will show you graphically the difference between the equity curve and the drawdown. If the drawdown is high, it means that a trade will often go into severe negative territory before coming back up for a profit. If you are overleveraged, this could lead to a nasty margin call, with the broker closing your trade for you. A large drawdown is not necessarily a negative, as long as there are a good percentage of winners, but you need to allow for extra margin in your risk assessment.
The general screen will give you a percentage drawdown (Max DD %) , and the detail for each provider will show you graphically the difference between the equity curve and the drawdown. If the drawdown is high, it means that a trade will often go into severe negative territory before coming back up for a profit. If you are overleveraged, this could lead to a nasty margin call, with the broker closing your trade for you. A large drawdown is not necessarily a negative, as long as there are a good percentage of winners, but you need to allow for extra margin in your risk assessment.
Step Three - Trading History
Look at the number of weeks that the provider has been trading - the longer the better. Also, look at the number of trades, the average duration of a trade, and the percentage of winners. The percentage of winners is not always a safe factor, because sometimes a provider will hold on to a trade for a long period of time until it ends up in profit. So, look at the detail of trades. Are there any open trades? How long have they been open? Look at some of the winners - how long between opening that trade and closing? What was the drawdown for each trade (especially the long term trades - anything over three days is starting to look risky). If the trades are of long duration, with significant drawdowns, you know that the provider is on the risky side. Zulutrade makes scanning these trades quite easy, by showing all the live trades and all the open trades (if any). There are also graphic depictions of monthly profit and trade volume. Another useful indicator is Popularity(number of followers) - it is sometimes safe to follow the crowd!
Step Four - Money Management and diversification
This step is critical. Once you have chosen your providers, you need to allocate the number of open trades that you will allow, and the percentage of your capital that can be traded. The usual rule of thumb is to never let any one trade work with more than 2% of your capital. The Margin Call-o-meter will let you know how you are doing - as soon as it goes red, you know that you are sailing too close to the wind.
This step is critical. Once you have chosen your providers, you need to allocate the number of open trades that you will allow, and the percentage of your capital that can be traded. The usual rule of thumb is to never let any one trade work with more than 2% of your capital. The Margin Call-o-meter will let you know how you are doing - as soon as it goes red, you know that you are sailing too close to the wind.
It is also good practice to diversify by using different providers who are using different currency pairs. If you have five providers, all trading one pair, than a big market move on that pair will hit all of your open trades at once. A fair rule of thumb (for mini-accounts of less than $10,000) is to allocate one provider for each $1,000, and limit them to two open trades each. So, if you have $5,000, then select 5 providers, trading different currency pairs. However, the Margin Call-o-meter should be your ultimate guide!
Summary
In this and any other automated forex system, always take your time in choosing your providers. Carefully scrutinize their trading history, and make sure that they are trading their own money on their system! If you spend the time picking the best providers, and set your allocations well, then you will be able to pretty much "set and forget" - although you MUST keep checking, because any provider can have a bad run.
In this and any other automated forex system, always take your time in choosing your providers. Carefully scrutinize their trading history, and make sure that they are trading their own money on their system! If you spend the time picking the best providers, and set your allocations well, then you will be able to pretty much "set and forget" - although you MUST keep checking, because any provider can have a bad run.
If you are just starting, you should sign up for a demo account first, so that you can get to know the system. The account stays open for a month, which will give you plenty of time. Once you have the system worked out, put some real money on the table, and START TRADING!
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