How to choose an zulutrade signal provider?
I am frequently asked for recommendations about which signal provider I would recommend at the moment, whilst this is flattering I feel that in making any recommendations I would be offering you only a short term solution. I would prefer however to show you how I choose my signal providers”
How hard can choosing a system be?
When we are choosing which signal provider to follow we must ask ourselves this question.
Will the signal provider continue to make money in the future???
If you answered honestly you would have said I DO NOT KNOW - IF THIS SIGNAL PROVIDER WILL MAKE ANY MONEY IN THE FUTURE. This is a truth that we must understand. When we choose a signal provider we do not know if it will profitable in the future. The signal provider we choose may make us money or it may not. We cannot control or predict which way the market moves.
However we DO know that some signal providers are more profitable than others. If we can identify these profitable signal providers we stand a much better chance of making money.
To identify profitable signals we need to adopt a method from stock investment. We are looking to select a stock using a screening technique. This process reveals which stocks are undervalued. As everything in finance reverts to the mean (average) we can buy a stock that holds extra value and this has the potential to make us money.
We can use this same principle when we screen our signal providers.
I have set myself a few simple rules which I follow. I only consider a signal provider if their system has traded for at least 26 weeks. If any signal provider has traded for less than this time they are considered unreliable.
I only pick a system when it has reached the to 20 of zulutrade. I find that there are two types of system which reach the top levels of zulutrade. These systems thrive because of the way Zulutrade’s zulu-rank system is calculated. This calculation is based on system % growth.
New fast growing system can move up the zulutrade rankings. If a system is successful it can quickly reach the top 20. Because these systems are new they seem successful because of their % growth rate. When These systems start a losing streak as they WILL when they revert to the mean and lose money.
I choose systems that have traded for at least 26 weeks and I choose a system that has reached the top 20 of zulutrade. These successful systems have made it into the top 20 because they are making money. We must always use the best signal providers that zulutrade has to offer.
I only choose signal providers that have earned their place in the top 20. It is these providers that give us the value we need to make money.
The perils of a single system?
When we trade a single signal provider we are exposing 100% of our trading capital to chance. Essentially we are betting on whether a single system will make us money. If the system we choose stops being profitable we will lose money,
This is called system risk.
When we trade a single system we have 100% of the system risk. So how do we reduce this risk? We must trade multiple systems in a single trading account. This diversifies the system risk between the systems.
This is called a portfolio…
This portfolio can have dramatic effects on both our performance and our risk. When we have chosen wisely we can enhance our profits. At the same time we also have lowered our system risk.
Because we have chosen a selection of signal providers we are able to monitor the results. When a system stops making money we can remove it and replace it with a new one. The poor system losses are balanced out by the others profits.
We can reduce the system risk even further. Our aim is not to be reliant on any single system but to use many systems as we need to diversify our risk. We are also to able to increase our profits.
We split our trading capital into different trading accounts. This allows us to increase the number of portfolios we can use. This in turn reduces our system risk.
Now we are trading 20 signal providers and we are able to harness the top successful signal providers to make profit.
zulutrade’s still working perfectly for me.
