Zulutrade Tutorial: How to Avoid a Large Drawdown

The following article is a re-post of Zulutrade's newsletter dated Jan. 4, 2012:


Dear Zulutraders,
After 4 years full of data analysis, we can now suggest a quick tutorial that will show you how to prevent, in most cases, a large drawdown by a provider in your portfolio, and disable such providers before the drawdown gets serious.


We will base our tutorial on the signal provider "FX178", a signal provider that quickly climbed at the top 10 performance list, but suddenly got hit by a huge drawdown. How could we prevent this drawdown and what could we do to detect that something is not right?


Below we can all see the tragedy:

Now let's see how we could detect it. At the chart below we can see the weekly worst trade. As you can see this provider's strategy has never crossed the 170 pips worst trade limit for the first 6 months. Right after that he started risking more, his worst trades grew larger and his appetite for risk became stronger; he also started risking 200 pips or more, in contrast with the last 6 months when he never did so. It is obvious that he changed strategy. If you could have placed a stop loss equal with the average of the worst trades he had experienced during the last 6 months, you would have prevented the whole tragedy afterwords.

This practice will not work for signal providers with tight stop losses such as i.e. Forextechno [EURUSD_LT]. It will only work, in most cases, with signal providers that will experience a higher than usual drawdown, putting our accounts in risk.


One of the best ways to spot the right stop loss, (we always recommend to use a stop loss as a safety net by selecting the Safe option at your accounts Advanced Settings), is to use our latest backtest tool seen below. You can find it in your Settings page, after you login, at the button "Backtest"


Find the right stop loss for each one of your providers, or decide to remove the provider, in case there is no stop loss that will make his/her strategy viable. Try before you buy!
Play with slippage and see if this strategy is viable in real life (unless the provider broadcasts from a live account, in which case all results are perfectly realistic).

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New Zulutrade Backtesting Tool

The following article is a re-post of Zulutrade's newsletter dated Dec. 29, 2011.

A new more sophisticated backtesting tool has been developed by the Zulutrade team! The all new backtesting tool lets you do more!

Simulate providers performance including custom stop loss or take profit. Eliminate certain currency pairs, or perform any custom settings, and see the results! Compare them with the signal provider's results! Identify ideal stop losses for each provider and protect your account.

Simulate with real life slippage!
Combine multiple providers and identify ideal combinations for your portfolio!


We have tested this new tool in our lab, and realized that in most cases if an ideal custom stop loss had been used, our testing account was performing much better than a provider's account!


If you decide to use a custom stop loss (which we recommend you always do, for all the providers in your portfolio), make sure to find the ideal stop loss through our backtesting tool, and make sure to tick the "safe" option.


In periods of global crisis and huge volatility, the ideal stop loss is the one that will protect your account in the long run!

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ZuluTrade Demo Account Results ($1000) - December 2011

Here are the current results of my demo account as of Dec 31, 2011:

Caveat: As with all trading systems in Forex and in other investment vehicles, past performance does not guarantee future results.

Demo account: DM738699
Initial Deposit: $1000
Date opened: Dec 1, 2011
Pips: +1034
Gain/Loss: $117.09 (Gain)

Below are the settings and stop loss levels that I used in this demo account. My stop loss for Forex Cruise Control (FCC)was hit twice in the month of December, while the actual loss in these trades for FCC's trading history were smaller as the trades were able to recoup some of the paper losses. FCC still managed to end the month with some gains.

The account settings I used for this demo account are aggressive, with the Margin-call-o-meter at more than 100%.

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Pesos And Sense Videos - Investing

For my kababayans, here are some great videos made by Pesos and Sense about investments. I think they are doing a great job in helping Filipinos increase their Financial IQ. Although these videos are not specifically talking about Forex trading, I believe the content is applicable to all types of investments. All credit belongs to Pesos and Sense. You may visit their website here: http://www.pesosandsense.com/

Pesos and Sense Explains: Why you should Invest Early

Pesos and Sense Explains: How to Avoid Scams

Pesos and Sense Explains: OFW Tips on Saving

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Zulutrade: Using Stop Loss and Limit Orders

Limit and Stop Orders

Limit is a setting that if put in place by the client or a provider it will close the trade at a given profit.
Stop is a setting that if put in place by the client or a provider it will close the trade at a given loss.

When trading Forex, being in a losing position is inevitable, but we can always control and limit our risk when we are caught in one. A Stop loss order is a very important trade management technique where you can  prevent further losses on a position after the exchange rate breaks through a prespecified level.  Some signal providers in ZuluTrade implement their own stop loss in their trading system, while there are other providers who do not. In either case it will be up to you to put a stop loss order to make sure your account survives during times of huge drawdowns and avoid the dreaded margin call.

On the other hand a Limit order is used to lock in profits when the exchange rate hits a prespecified rate. This trade management technique lets you take profits at a certain level so you can avoid losing your profits in case the market moves against your position.

There are three ways where you can put Stop Loss and Limit Orders in Zulutrade:

1. When you have open positions you can place a stop loss and/or a limit order for each individual trade.Just click on the default stop or limit for each open position under the "Positions" tab. A window will appear where you can type in your stop or limit for each position. You can adjust the stop loss and limit orders for automated or manual trades.

2. You can place a stop and limit order for ALL trades that will be taken by your chosen signal providers. Under the "Settings" tab, click on the Advance Settings to expand the setting options. You can then type in  your desired stop and limit (in pips) for each signal provider under the Stop and Limit boxes. Click on the "Safe" button if you want to use the signal provider's stop instead of yours in case it is less risky to do so.

3. The third option you can use to place stop and limit orders for each currency pair. This option comes in handy if you wish to take into consideration the different volatilities of each currency pair in managing your risk.Under advance settings click on the "notebook" icon. A new window will appear where you can adjust the stop and limit for each currency pair.

Your stop loss and limit levels will vary depending on your capital, the signal providers you use, and your risk tolerance. A stop loss level that is too close to your opening level might do more harm than good. Always study your signal provider's trading history and drawdown and adjust your stop loss levels according to your capital.

Related Posts: Zulutrade: Understanding Drawdown

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Zulutrade: Understanding Drawdown

Understanding Drawdown and how it affects your account will help you a lot to avoid losing your precious capital. Zulutrade's "Max DD%" maybe the most important tool you can use to analyze signal providers in Zulutrade.

What is Drawdown?

Maximum Drawdown is the largest peak to valley equity drawdown in the signal provider’s trade history. A high maximum drawdown means that open trades experience huge paper losses before they are closed. So even if most trades ultimately end up as winners, they likely had to go through an extended drawdown before returning to profitability. Huge drawdowns can lead to Margin calls, where the positions which do not have sufficient deposit will be simply closed by the broker. (You don't want a margin call to happen in your account!)

Zulutrade shows Maximum Drawdown as a percentage and is computed from the number of pips against the total profit.

 

 To better illustrate let's take a look at a signal provider with a very EXTREME drawdown:

Maximum Drawdown is shown above as the red line. As you can see this signal provider experienced huge paper losses and for an extended period! This means that the trades with huge losses are left open in your account. If your account does not have sufficient capital, your account will suffer a margin call and the open positions with huge paper losses will be automatically be closed by your broker. Take a look at this signal provider's Equity curve below:

We definitely want to avoid this signal provider! The account equity reached a low of -3000 pips, has an overall profit of 1 pip, and has open positions of -2,178 pips! The warning from Zulutrade says it all!

What to do:

Always check the Max DD% of the signal provider at the Performance tab and at each signal provider's page. The lower the Max DD%, the better. The next thing to check is the Trading History. I find that using the Excel format of the trading history is better as you can easily highlight huge drawdowns. 

Look for trades with large negative drawdowns. This indicates the degree of risk taken by the signal provider, and whether the signal provider is leaving trades open too long or using very wide stops. 

When dealing with drawdowns in your automated trading account, the maximum drawdown is a good measure of the amount of negative equity you can expect. However don't trash a perfectly good trading system because of drawdown, as long as those losses are within the amount of risk indicated by the maximum drawdown and the equity curve.

Related Posts: Zulutrade: Using Stop loss and Limit Orders

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Zulutrade User Guide

GUIDE BELOW IS TAKEN FROM ZULUTRADE'S WEBSITE:

1. Opening a Live account with ZuluTrade

To open an account with our revolutionary trading platform at ZuluTrade. Please visit our homepage at http://pinoyfx.zulutrade.com, select 'open live account' at the top of the page. From there fill in the requested information, and shortly there after, your account will be funded and you can receive our free signals for your auto trade. The minimum account deposit for a Mini account required by our brokerage firms is: $300. However we do recommend that you fund your Mini account with no less than $500. If you wish to open a standard account, we do recommend that you fund it with $15,000. Furthermore we offer AUD, EUR, GBP and JPY mini accounts.

2. Setting up your account with your Broker

When you select to open a live account through our website http://pinoyfx.zulutrade.com, you will be prompted with many questions and requests by the brokerage firms we are compatible with. They require you to send them a valid form of ID, and a proof of residency. Furthermore you will also have to fill out and complete an LOD (letter of direction) form. The setup process if everything is submitted correctly and filled out properly, generally takes in the realm of 2 to 3 business days. Immediately after your account is fully setup and funded through your broker (doing all of this through our website) we will then automatically send you your login details to be able to log into your account, and begin auto trading with our revolutionary platform.

3. Selecting Signal Providers to autotrade your account

While logged into your account, under your account settings tab at the bottom left hand corner you will notice a selection tilted ‘Add a provider’. By selecting this you will bring up our vast selection of signal providers. You may select any provider at any time to auto trade your account and there is no limit to how many providers you will use. Most providers have under their names in our performance page, a portfolio that describes a bit about their strategy.

Furthermore in your account settings you will notice a bar called ‘systems’ where as with no providers selected it remains clear. However the more providers you add, or depending on your account settings and present equity in your account it moves from green to red, and tends to display the message “you have too many providers selected for your account”. No matter which provider or how many you select, they will always trade your account even if our system indicates that you have selected too many. This is simply a precautionary measure that we take, to inform our clients about their exposure. (is based on the clients total equity or account balance, and also relates to how many lots the selected signal provider typically opens at any one time).

4. Managing your account

The client has full control over his/her account in the way each selected provider will trade it. After you have selected a given provider to auto trade your account, you can manage this provider by doing the following. Increasing or Decreasing the number of Max Open Lots so either the provider can open several trades at once, or just a few, or even just 1 at a time. Increasing or Decreasing the number of Max Lots per provider, this controls how many lots each individual provider can open in your account at any one time. You can also change the number of lots per trade each provider will trade with, this will increase the spread and volatility of the trade. We recommend that you setup your account based on the equity you have, and the risk that you are willing to take to earn your desired ROI. We do have a very vast selection of signal providers to choose from, and we recommend opening at least one demo account and testing several of them to get comfortable with one, or a few, before opening a live account.

5. What do the settings in your account mean, and how to use them

Most of the changes you as a client can make, remain under your account settings tab while logged into your account, while others can be changed in your open positions, pending orders and when you first select a provider to auto trade your account. Lets first start with every function and how to use it under your account settings tab.

A. Max Open Lots

This setting pertains to the total number of lots that can be opened and/or pending at any one time in your account. This is a drop down menu selection that ranges from 1 to 500 with different incriminations along the way, and also has a no limit setting at the end. So lets say you have 2 providers selected and you have your max open lots setting set to 5. 1 provider has 2 trades open, and one pending order, thus totaling 3 lots. While the other provider has 2 trades open thus totaling 5 lots all together, and equaling your max open lots setting of 5. No more trades can be either executed in your account or placed under your pending orders tab. So if you notice that one of your selected providers has opened another trade under his/her trade history, on our performance section of our homepage, but that trade never hits your account, this is because it would have exceeded your max open lots setting, and that is not allowed.

B. Lots Per Provider

Next to each provider you will notice a drop down selection titled ‘Lots’. This selection pertains to the total number of lots that will be traded for each individual trade by that provider. This selection ranges from 1 to 50 with different incriminations along the way. Relating back to the previous example of having 5 max open lots, where as a provider opens 2 trades and equals 2 lots, this is if your lots per provider is set to 1. If it were set to 2, then those 2 trades would equal 4 lots, thus only leaving room for one more lot to be able to open in your account.

C. Stop/Start button

This pertains to either deactivating your account, or activating your account depending on whether the button is either currently displaying a red stop or a green start indication. You can select either one at any time to either stop or start receiving trades in your account. When you first open your account, the button will already be active and ready to begin receiving trades. By selecting to stop your trading activity, no trades will be able to be placed in your account.

D. Max Lots

You will find this setting next to each providers name, this pertains to the max open lots that a single provider can place in your account. So lets say you have 10 max open lots, with 2 providers selected with one lot per trade, and 5 lots for max lots, then each provider can only have 5 lots open each at one time, thus possibly filling up the 10 max open lots for your account selection.

E. Configure

This setting can be found next to each provider further to the right. By selecting this you will be taken to a new page where all possible currency pairs are displayed. The current setting for all the pairs will initially be 1 lot per each pair. However you may change this setting, so you can have as many lots as you wish per each different currency pair to be traded by a signal provider.

F. Reverse

This is a checkbox next to each provider’s name that you have selected in your account. It is a fact that some providers don't send good advice. Even more, their market predictions are so wrong that it can be profitable to do the opposite of what they suggest. So when they say buy you actually sell, and vice versa. When reversed, some of the worst providers outperform even the best ones. Toggle the reverse checkbox and see for yourself how profitable some providers can be.

G. Limit and Stop

These settings can also be found next to each provider you have selected in your account. Limit is a setting that if put in place by the client or a provider it will close the trade at a given profit. Stop is a setting that if put in place by the client or a provider it will close the trade at a given loss.

H. Remove

You will notice this selection at the far right of every signal provider's name that you have selected in your account. By simply selecting this option you will remove this provider from autotrading your account, however, any remaining open trades or pending orders that the provider has placed in your account will remain there, even after you remove this provider. You can close them manually anytime you wish.

6. Open Positions

This is where executed signals that providers place in your account will show. Here you can see what your current earnings or losses are at the moment. Each trade that is open under your open positions tab, you can change certain values of that trade if you wish. By clicking on the current ‘stop’ value of the trade, this will bring up a popup window where you change this value if you wish, you can do the same for ‘limit’ as well. Furthermore to the far right of the trade you will see a selection titled ‘close’ by selecting this you will then be prompted with a ‘sure’ selection, after this has been chosen, the trade will then close and no longer appear in your open positions tab. Take into consideration that sometimes there is a brief delay in the closing of trades. Once you close the trade it will immediately close; however it can sometimes appear to be still open under your open positions tab. Try refreshing the page as this helps to depict the current status more accurately.

7. Pending Orders

Under this tab you will find all pending orders placed by your signal providers. These are trades that have been assigned different market values of the current market value of the given pair, thus they will not open in your open positions tab until that value is reached. Here you can make the exact same changes that we discussed in the previous chapter ‘Open Positions’, with stop, limit, and closing the trade. However you can also change the value of the ‘open price’, where as this is what price the trade will execute.

8. Trade History

Here you will find a history with all the trades that have opened and closed in your account. You will also have a graph and a few filters to represent the data as you see fit. You can click on the ‘date open’ of each trade to generate a pop up window showing you a graph with the high and low reached of that trade, also it will show if the trade was opened at market price, or if it was a pending order, the reason for the trade being closed i.e. via a signal from a provider, or a manual close by the client. Also in your trade history you will notice a filter selection where as you can filter the graph and data below to represent all signal providers, or one at a time, thus the same goes for currency pairs, and furthermore you can change what dates you wish the history to represent.

9. Create a Trade

Here the client can place manual trades as he/she sees fit. You will notice all the currency pairs, a buy and sell column and a constant green and red color-flashing price upwards or downwards. If you wish to place a manual trade, simply click on either buy or sell for a given pair and a popup window will appear. This window will consist of the current market price and a limit and stop setting. You may change the current market price by deselecting the ‘market’ box, thus enabling you to place a different market price, which in turn will create a pending order. You may also place stops and limits through this popup window as well. Once you have entered the information you wish, simply click on OK and the trade will be placed either in your open positions, or pending orders.

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Important change in Signal Provider's compensation procedure

Another welcome development from Zulutrade:

From Zulutrade's newsletter, November 11, 2011:

"ZuluTrade changes again!

As part of our continuous effort to increase the quality of ZuluTrade's Signal Providers and provide better strategies for your investment, a new rule has been imposed:

Signal Providers will not be compensated if a month is negative in PnL.

So from now on, rebates earned during a month with a negative overall Monthly PnL wll not be paid out to Signal Providers."

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Forex Broker Review

Here is my quick comparison of the forex brokers that I've been using in my Zulutrade live accounts.

Broker: AAAFx

Minimum deposit: $300

Minimum lot size in Zulutrade: 0.1 Minilot  (Increments of 0.1 minilots thereafter, i.e. 0.1, 0.2, 0.3...)

Bonus on deposits: Bonus is released upon completion of required round lot turns.

Deposit options:

All Credit Card transactions are subject to a 2.95% processing fee which will be applied to the deposited amount. AAAFx accepts up to $1000 maximum deposit per transaction and $2000 maximum deposit per calendar month. In any case the recommended method above $1000 is Bank Wire. For security reasons and to protect against fraud, clients are required to submit a scanned copy (front and back) of their credit cards and a recent account statement for each conducted transaction.

Withdrawal: Wire transfer

All wire withdrawals are subject to a $25 bank fee for USD accounts or 25 EUR for EURO accounts which will be applied to the withdrawal amount.

Documents required upon opening an account:
1.) A copy of a valid passport or photo ID
2.) A copy of a current utility bill or bank statement or rental agreement as a proof of residence
3.) If funding an account by credit card, credit card statement and scanned copies of the front and back of the credit card. These documents are required only when the cumulative sum of deposit transactions via credit card totals $1000 and above.


To open an AAAFX account, click here: https://www.aaafx.com/OpenLiveAccount.aspx?aid=24766

AAAFX is directly integrated with Zulutrade, so there is no need to sign-up separately on Zulutrade.

Broker: AVAFX

Minimum deposit: $100

Minimum lot size in Zulutrade: 0.5 Minilot  (Increments of 0.5 minilots thereafter, i.e. 0.5, 1.0, 1.5...)

Bonus on deposits: Bonus is released upon completion of required round lot turns.

Ipad promo is valid until 12.21.2011

Deposit/Withdrawal options:

Ava FX does not charge any fees on deposits. The entire amount deposited will be credited to your account. Accounts funded by credit card may be restricted to receiving withdrawals via credit card.

To open an Ava FX account, click here: http://www.avafx.com/apply/?tag=25863

After opening an Ava FX account, you may open an account in Zulutrade here: https://pinoyautoforex.zulutrade.com/SignUp_Live.aspx. Choose Ava FX as your broker.


My recommendation: If you are planning to open a Zulutrade account with a $300 capital, AAAFx gives more flexibility in lot sizes. The minimum lot size allowed is 0.1 minilot (with 0.1 minilot increments thereafter) which can help limit the risk for your account, compared to the 0.5 minilot allowed for Ava FX. For accounts with $1,000 capital and above, I recommend Ava FX as they have faster execution and lower slippage.


Visit my Sulit.com shop now! Click here: http://sulit.com.ph/4489160

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Forex Videos - Introduction to Forex

Watch this video to know more about Forex.





Here is a great site to read more about Forex: www.babypips.com

Visit my Sulit.com shop now! Click here: http://sulit.com.ph/4489160

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