Hello Ladies and Gentlemen,
(Most of you probably know who I am already so I’ll save the introduction)
Why am I doing this?
Lately, I have noticed an increasing amount of threads and members talking about ZuluTrade and trade copying services in general (For the remainder of my posts here, I will just state “Zulu” or “ZuluTrade” as a general term for all trade copy or signal services).
The opinions seem to be mixed in both extremes; some believe it is a holy grail while others disregard it completely. Personally, I do not use ZuluTrade and do not care to in the near future as I do trade and run my own business. But on the other hand, I do realize that many others would like to use it as a way of earning some side income (or full).
With that being said, I did my own investigating and decided to make my research totally free and public for everyone to see. I hope that this thread will help beginning and even experienced traders/investors out a little and perhaps guide them through their journey in this industry or even generate a “lightbulb” (I’m “punny”, I know) moment of their own.
I am assuming that you know what ZuluTrade (and similar services) is and how it works. If not, please visit them and see for yourself.
Introduction
The main strategy that Zulu investors apply is by diversifying among several signal providers and letting them do their thing with the trader’s preferred risk settings. That is absolutely fine, but as investors we need to proactively search for the most optimal ways of manage our risk whilst maintaining or even increasing our ROI. In this thread, I propose a new methodology of managing capital with ZuluTrade.
Rather than letting your portfolio of signals run and do their own thing (only stopping when there is a drastic negative change in the provider), I want to talk about a method of deciding when to pause on a specific signal provider when they’re in a drawdown and when to start them again once they are looking healthy again.
My method is purely mechanical and quite simple actually. It’s a technique that many systematic firms/traders use. I am sure there are some Zulu investors that do this too but have kept it a secret from the public (sorry guys).
The Approach
The idea was based off of a concept in systematic trading called “trading the equity curve”. The basics is that one will plot a fast moving average with a slow moving average and only continue trading that particular system when the fast MA crosses above the slow MA, while pausing it when the slow MA crosses above the fast MA. For further readings, do a quick search online. You will find quite a few resources online that will go more depth than myself.
In most cases, this can help you reduce your losses as well as increase your returns. Well, can we think about a signal provider as a trading system in one’s portfolio of providers? Let’s find out!
The Experiment
I exported the trading history of the top 5 signal providers (as of January 8, 2013) from ZuluTrade in CSV and calculated the aggregate pips gained after each closing trade. The reason I chose the top 5 is that there would be no bias towards any specific provider and the top 5 are the ones the majority include in his or her portfolio. The range of data was all trades taken from September 1, 2012 to the time of this post (I may have missed a couple trades while writing this, but I do not believe they will matter all that much).
I plotted a 5SMA and 10SMA on the pips gained. The idea is to only follow the provider when the 5SMA is above the 10SMA and stop when the reverse happens. I then compared the pips gained using this methodology compared to simply running all 5 at once with no intervention.
The signal providers were: duanxian, sczx, f8, xiaolidao and GBPJPYxiong.
NOTE: I am NOT recommending these providers or any in general. These were simply the top 5 ranked providers on ZuluTrade right now. Invest at your own discretion and I cannot be held liable for your investment decisions. I also am not getting paid for this by any affiliate, I am simply trying to give a little to the community.
Result
Below is a screenshot of the most recent 250 trades taken by duanxian (just a random selection) as well as the 5SMA (red) and 10SMA (green) plotted together:
I did this for all 5 signal providers and the results were quite interesting. “Default” means if you just let the signal provider run without intervention. “Improved” means using this strategy.
duanxian
sczx
f8
xiaolidao
GBPJPYxiong
Aggregate
Default
4033.5
1788.4
3581.0
13430.6
1831.1
24664.7
Improved
5022.7
1992.4
5585.5
13713.0
1857.2
28170.8
*These values are in pip gain and not ROI. The reason being ROI is affected by the risk level/volume set accordingly based on the specific trader.
As we can see there is an increase of 3506.1 pips which is approximately a 14.22% increase on your Default ROI within a span of approximately 4 months.
I have attached my Excel spreadsheet if you wish to take a closer look.
Conclusion
To conclude, we have designed an optimal trading plan for ZuluTrade and other services. I believe it is still very much practical and can be used. I hope this post has sparked some interested as well as further innovation in which we may work on. I love collaborations and sharing of ideas.
When I find some more time, I will try to test this on more signals as well as on a large time span. Perhaps in the future, I or someone else can develop a GUI application to automate this for the user and make it more user-friendly, although I think Excel will do the trick just fine.
Thank you for taking the time to hear/read me out. I look forward to what everyone has to say about this.
Kind regards,
ClarkFX
ZuluTrade Research.zip (525 KB)
