Zulutrade Drawdown

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Every signal provider statistic for a trader on ZuluTrade is there for a reason, and ‘Drawdown’ is no exception. Maybe it’s not the most important, but, if you are choosing traders to copy, it is one that definitely should not be ignored.

When I first started CopyTrading, I thought that I’d do what I thought would be the smart conservative thing, and follow traders with 100% win ratios. However, although when you look at 3 month stats you may find 100% win ration traders (signal providers), but none of them have 100% over all time. Not a problem. No-one is perfect. But, even if you do find traders with near perfect ‘win ratios’, should you copy them in search of often lower, but safer profits?

Probably the answer is yes, but, before you select a signal provider on Zulutrade with a high win ratio you should check out their Drawdown stats on a ‘tab’ on the right of their performance page (see image below). (There is also a column for Drawdown percentage on the Performance main page (Max D/D %), however as this figure may be aggregated, it’s probably safer to look at the actual ‘over time’ graphs). The stats show you in graphic form how far ‘south’ or in the red their trades have gone. So what does this tell us? It may tell us a bit about their trading strategy.

Before we answer this, we should look at exactly what ‘Drawdown’ means. When you are on a signal provider’s drawdown graph, you can mouseover points on the graph and you will be given a figure of how many pips in the wrong direction their trade went. This doesn’t mean that they lost the trade, it simply means that before the trade was closed, they were ‘x’ amount of pips potentially in the ‘red’.

The closer the red line is to the green line the better. This shows that the trader was probably following the ‘trend’, and that they got in, opened a trade and either closed manually or via ‘Limit’ at the right point. This does not mean that a trader with highly divergent red and green lines is a bad trader, but, nevertheless, they are risk takers.

ZuluTrade Drawdown

If you look at the drawdown graph above, you will see that a lot of his/her trades go seriously into the red before they go green. He wins the majority of his trades, however his worst trade is a loss of over 1,000 pips, which could wipe out a lot of smaller trade copiers’ account out (depending on the lot sizes they were using). However if you want to learn and start off with a demo account, you can test this out without potentially losing any cash. And even with the demo, you could use very small lot sizes (0.01 on a mini account), and see if your demo strategy is one that could be feasible with a live account.

The potential problem for copiers, is that even though the signal provider usually wins, it may be because they have a large account, and this means their margin is less likely to be called. A copier with a smaller account may find their margin called sooner, and may suffer a severe pip loss, while the original signal provider can ride out the wrong direction that their trade has taken until it breaks out.

Even if you do find a trader with high overall pip gain, and protect yourself with ‘sensible stop losses’, that may not work. It may even backfire on you and make you lose more trades, because your stop losses may be too conservative for the trader’s strategy. Your trades are closed due to stop loss, but he wins, because he knows that the currency will eventually break out, and his margin is large enough to play the ‘long game’.

If you have a large account that can absorb big losses against overall long term gain, then this may not be the most important factor for you when choosing a trader. But for copiers with smaller accounts that cannot happily take the big hits this is very important.

What a high drawdown rate may tell us about a signal provider’s strategy is that they are the opposite of scalpers. The winning ones are ones that look at the ‘bigger picture’, and not short term indicators like the US non farm payroll. They may actually be some of the best traders, although, again they are taking highly calculated risks. And, let us not forget those traders traders with high drawdown who simply lose anyway.

Drawdown is only one of many factors that you should consider when choosing traders to copy on ZuluTrade. But, it is one that is apparently overlooked by some traders, to their regret. However, at least the facility is there to use of which gives it an advantage over other copy-trading platforms. The best way to test it out, is to try out a demo account.

12 thoughts on “Zulutrade Drawdown”

  1. I totally agree with you , drawdowns are very crucial factors when choosing an SP , you should check if your equity will stand against the worst drawdowns of a trader , otherwise just dont follow the risky ones

    1. Yes, some of the drawdowns I’ve seen even on the ‘green traders’ are very scary – and if a new copier sees their winning stats without checking DD, and starts copying them, they could be in for a potentially nasty shock.

  2. I like your posts about zulutrade as i am “learning” with my demo account. Please continue your posts!

    1. Hi Vek, thanks for the compliment, I doubt that anyone ever stops learning! I’ve got loads of stuff lined up to work through, but if you have any suggestions, please let me know, and do my best to address the issue. G.

  3. A question to you. From the thing you’ve seen in zulutrade what is the main disadvantage in your opinion?

    1. To be honest, at this stage, for me the biggest disadvantage is one of it’s strengths. It has considerably more ‘trader data’ on offer than some other platforms that I could mention, however this can turn the task of choosing traders into a bit of a logistical nightmare. With other platforms, you get less data, and to some extent less risk (and less profit potential). With Zulu, you get a lot more, and figuring out a winning formula is a nightmare (and is the goal of all copiers). So more risk/cash potential leads to a lot more hard work, and in this sense Zulu may not be a good choice for those without the appropriate resources (time/critical thinking/good maths etc). The platform is not an easy option. But, as the Russians say “If you don’t take risks, you never get to drink champagne’. (I can think of exceptions to that one!)

      1. Hi again Vek, I just remembered something else that I don’t like, which is the lack of ‘Don’t accept anymore trades fro this signal provider button’. Without, if you want to stop copying a trader, but there are still live trades open, you either have to close each trade and take any current losses, or sit around watching the screen until they are in profit and close (and in the meantime they may open another trade, and even if you close it immediately you will lose the spread at least). Or you could alter limit to close as soon as in minimum profit range – all of which are a pain. I know this happens on other platforms, but I am not convinced that there isn’t a programmable way around it. Regards, G.

  4. Yeap i preety much agree with your point about the amount of stats. It is very good information but it could lead to spending too much time finding a provider. Thats why i think they have this alchemy feature and of course the ranking.

  5. yes we can see that in Oct, the picture aint looking so pretty for that trader, however, i noticed that the last trades he managed to limit the dd, which inclines me to think that he has straigthen up his strategy and leaves less open position and closses less negative trades.

    1. Hi Tye, I’m not sure, he definitely appeared to be for a while, but check out his best trades – worst trades, on his performance tab, he still looks a bit of a risk, in fact it looks like even if he did change his strategy, he may be reverting. Again, with someone like this, it’s a question of risk appetite and ability to absorb big losses for long term gain. He is hitting some very big wins (check out hsi trading history for the amounts). But, some of the losses are just too heavy for some people to absorb. G.

  6. Helpful post.

    So how can I minimize a risk if I follow a trader like in the example above and if I have $ 200 in my account.How can I stay in the trade following such trader and having low account balance?

    Thank you for answer.

    1. Hi again MIlikyas, depending on which platform you were trading with you would need to ensure that your potential losses are minimalised. The problem with adding your own stop losses (if facility available) is that you may be following a trader who keeps positions open for a long time, so your stop loss may close the trade before the signal provider’s potentially profitable trade, because they have more money in the bank than you, and are prepared to risk a bit more (one reason). A conservative approach with a small amount of money would be to follow someone who may not be highly profitable, but is consistent, and doesn’t appear to be a risk taker. When I say ‘doesn’t appear’, I say it because you cannot garauntee someone’s future behaviour based on their past. To my knowledge, Zulutrade has the best filters for selecting traders to follow. They are very good in that they have so much information about traders’ performance. At first it can be a bit daunting as there are so many variables, so again, it is a good idea to try a demo account first, at least while you are developing an understanding of the system, and all the different facets of the traders’ histories. In short in answer to your question, I personally would not follow a trader such as the one in the example, as they can obviously absorb big hits, but, my approach is a conservative one. Good luck, G.

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