ZuluTrade offers those interested in Social Trading a wide range of different signal providers to choose from. A signal provider, provides the signals which allow your account will follow and therefore will determine your trading success. This makes picking the right signal providers absolutely vital and while there are many good signal providers on the ZuluTrade network there are also some awful signal providers.
Perform a Detailed Examination of their Performance
ZuluTrade allows you a number of different indicators into a traders past performance including the total profit made, the number of weeks the trader has been active, ROI% (percentage return on investment), average pips per trade, average trade time, worst trade, best trade and necessary minimum equity. I look for a number of different things when evaluating each of these different metrics.
Total Profit: This is measured in Pips, which means its a pretty worthless metric. Different accounts have been active for different periods of time and many accounts have had performance vary over time. For instance a 9 month account may have had a great first six months and then a horrible last three months. You won’t want to follow such a trader even if they have had success in the past, as I believe consistent success is the most important metric.
ROI (Return on Investment): Return on Investment marks the total return made on the traders initial investment obviously the higher the return on the investment the better. However, traders who have hugely remarkable returns on investment might throw up some red flags as such huge returns likely indicate a high risk strategy. While such strategies can be highly effective they can often blow up in a traders face and lead to accounts being blown. This is why it would be foolish to invest on ROI alone, a trader should take into account other factors.
Winning Trades (%): Obviously the higher the percentage of winning trades the better and I generally look for a trader to have had a long trading history and a percentage of above 70%. However again one shouldn’t rely on this as their only indicator for instance a trader who averages 12 pips per trade but only Wins 70% of the time is superior to one who averages 1 pip per trade but Wins 94% of the time. A long consistent winning history of above 70% should be enough to put your faith in a particular trader providing other things are looking okay.
Average Pips Per Trade: This is quite an important metric of performance and what you should be looking for will depend partly on what brokerage you are using ZuluTrade, your going to want to look for more Pips per trade if your brokerage has wider spreads or significant slippage. Also while others won’t be as bothered as me I don’t like trading strategies which open positions in order to earn a couple of Pips. It just doesn’t seem to make sense from a risk management point of view, I generally stick to traders who average in excess of 5 Pips per trade.
Average Trade Time: While not particularly important in determining whether a trader is reliable, the Average Trade time has a varying importance depending on the rollover/overnight costs that your brokerage charges you. If you have significant overnight costs to take account of your probably going to want to give traders who keep trades open for a couple of days a miss. Things like this depend on the trading conditions that your brokerage offer you.
Maximum Draw-Down: The bigger the maximum draw-down generally the riskier the trader is. Preferably you would look for a trader who had a draw-down of less than 10%, though I will sometime place money with traders who have draw-down’s of up to 15%. Anymore than this strikes me that the trader is practicing poor money management.
Best/Worst Trade: I don’t pay particular attention this metric and generally just ignore it, I’d rather pay more attention to the maximum draw-down.
Such a detailed analysis of these metrics should help you determine whether it would be a good decision to follow a particular trader, they also give a good basis to which you can compare two different signal providers. If you want to go into further detail you can do a trade by trade analysis of the signal providers positions and take a look at them on charts to see whether they had good reasons to enter into the various positions opened. Most of the time you won’t need to do such analysis. Just looking at the key metric should be enough.
By Ed
