e-Toro & Zulu Trade How To Find The Best Traders To Copy
Estimated Reading Time: 25 minutes
Many of you watched the movie “Catch Me If You can” that is based on the book of “Catch Me If You Can; The True Story Of A Real Fake”, autobiograhy written by Frank Abagnale, who swindled $ millions through Check Fraud (Stick with me, this is actually a Forex Social Trading, eToro & Zulu Trade story). Frank was an excellent imposter by posing as a Pan American World Airways pilot, a Georgia doctor, and a Louisiana parish prosecutor etc. The film was directed by Steven Spielberg and stars Leonardo DiCaprio as Frank and Tom Hanks as FBI agent Carl Hanratty. The notable figure to me is this Carl Hanratty who was described as Sean O’Riley in the original book and the real name is supposed to be F.B.I. agent Joseph “Joe” Gerald Shea, a man of Boston Irish descent according to this interestresearch . Special Agent Shea was the head of the FBI investigative team chasing after Frank, had spent several years looking for him and finally caught him. For some time, Shea had believed that Frank was an experienced criminal in his mid-thirties, not realizing that his suspect was only a teenager. Tom Hanks played in the movie said “He’s a kid. Our unsub is a kid. That’s why we couldn’t match his prints. That’s why he doesn’t have a record. Now, I want you to contact the NYPD for every all-points juvenile runaways in New York City. And don’t forget the airports. He’s been kiting checks all over the country. ” Abandon prejudice, don’t be misled by something appeared on the surface, and keep digging down the true colour is a formula of success which I’m sure apply to the process in qust of the best traders in Social Trading Platforms like eToro & Zulu Trade. Frank said “If my forgeries looked as bad as the CBS documents, it would have been ‘Catch Me In Two Days.” when asked of his opinion of the Killian memos (six purported documents critical of President George W. Bush’s service in the Air National Guard in 1972–73). I’m sure eToro / Zulu Trade information are as bad as CBS, which allows you to distinguish good & bad traders, but without good common sense & specific instruction, you won’t be able to do it in 2 days. Hope the below information will provide you with a good guidance for it.
Social Trading, Does It Really Work?
As explained in “eTro Review & 5 Quick Steps To Avoid Mistakes“, MIT Media Lab (below picture) researched and verified that Social Trading results in at least 6% better than the trading without guidance from the social network. You can read its full-report HERE. Let me quote its conclusion as below;
“We observe the effects of two social mechanisms in the eToro financial system: namely the effects of social feedback in eliciting experts and the effects of social influence when others’ trades are available to users. We find that social trading provides much better opportunities for profiting compared with individual trading. We discover that the eToro crowd is making excellent but sometimes not optimal decisions in selecting experts when they can see others’ choices. Our finding sheds light on many crowd wisdom systems which expect users to be fully rational under strong financial incentives. We argue that social effects are so strong that they sometimes override the rational assumptions. We also discover that users are prone to much riskier behavior when following their peers, and are much likely to overreact when their peers are doing so and the market is uncertain. This may explain the natural fluctuation of financial markets when there is no external information. Future works include a more accurate behavioral model for trading decision making under social influence, and a better way of hedging and portfolio constructions to leverage the potential of crowd wisdom at the same time eliminating the negative effects of social mechanisms on financial systems.
Considering the fact that financial systems after all are composed of humans, we believe that this direction of research is potentially valuable. ”
Although the research uses eToro open book case, I believe the findings apply to Social Trading generally (off course to Zulu Trade as an archrival of eToro), therefore I feel comfortable to move forard with the basis that this system works.
Identification Of The Best Performers Profile
The above MIT Media Lab research on eToro identified how the best performers make decision on their trading. This is what I said in my previous article of “Six Simple Things That Allow You To Start Social Copy Trading ” Let me excerpts key points from HBR (Harvard Business Review) report tited “Beyond the Echo Chamber” by Alex “Sandy” Pentland Nov ’13 issue, which summarized the MIT Media Lab research on eToro. The report indiated “The traders who had the right balance and diversity of ideas in their network had a return that was 30% higher.” See the table below, which was explained as “you can see that people fall along a continuum. One group of investors works in almost total isolation: Its members follow few other traders and come up with most investment ideas on their own. At the other end of this spectrum lies a group of hyperconnected traders who follow (and are followed by) many others, and social learning guides a lot of their strategies. Many of the investors using eToro fall somewhere in the middle?they engage in a moderate level of social learning but behave with a degree of independence that makes it clear that they’re not just following the herd.” Source: Harvard Business Review (Link)
The report continues “What pattern of exploration and social learning produced the best outcome? We discovered the answer when we plotted the return on investment each trader got against the diversity of ideas he or she harvested through social learning. An analysis of the results reveals that the effect of social learning is enormous. The traders who had the right balance and diversity of ideas in their network?meaning that their social learning was neither too sparse nor too dense? had a return on investment that was 30% higher than the returns of both the isolated traders and those in the herd. In this digital trading environment, the sweet spot resides between the two extremes. This intermediate zone is where social learning?that is, copying successful people?yields real rewards. And though this study looked only at financial decision making, we believe the principle holds true for all kinds of decisions.”
The report summarizes the research conclusion as;
– Copy Trading results in Better than Averages because Crowd Find Money Makers
– Need Reasonable Diversification To Avoid Echo Chamber effect
Quest For The Best Traders
So, let’s move to how we should select the best traders we will follow.
In Social Trading sector, Zulu Trade & eToro are the most established & reliable platforms, thus let’s examine the specific process in these 2 platforms. In case you have not been familiar with them, before going further, suggest you visit the below 2 articles;
These articles include step by step tutorial for you to start copy trading from scratch in each programme.
Firstly, based on the above MIT Media Lab’s research findings, essential principle when it comes to selecting the traders you want to copy;
1) Don’t Choose Traders By Solely Relying on The Ranking Of Numbers Of Followers
, to avoid echo chamber effect although many social trading sites suggest it as the simplest (& the most workable) way and;
2) Don’t Follow Only 1 Trader but Follow Multiple Traders
* Echo Chamber: The above Professor Alex “Sandy” Pentland explained it as “When people get a little too enthusiastic, they form echo chambers. The idea flow becomes a circle, swamping any new strategies people are experimenting with and leaving just a few strategies to circulate. As a consequence, everybody adopts the same set of strategies. But the world is constantly changing, so even the best strategies go stale very quickly, and everybody in the echo chamber loses. That pretty much defines what it means to be a bubble.” So, you may build a diversified portfolio with a minimum of 3 traders who use different strategies as you inherently copy every investment strategy.
There are several KPI – Key Performance Indicators you should understand and use to evaluate Traders. Suggest you visit my article of “Ultimate Guide (7 Secrets) To Find Best PAMM FX Trading – Part (1) & (2)”, which I drew conservative (thus safe) norms of each KPI for Managed Account / PAMM Manager, which should perfectly apply to the Social Trading Trader evaluation as well.
Anyhow, I will list up several tips / benchmark you may want to use to look for the Safe Traders as follows;
– Enough Proven Track Record Period: Need to evaluate the performance of the trader during different market condition, therefore the longer the better, say at least 12 month.
– Consistent ROI / Gain: Check historical performance graphs, the ideal one is a gradual increasing in consistent manner, the ones with irregular spikes are signs of less consistent traders and the smaller the gap in the profit and loss line proves more stable.
– Stop/Loss Setting: Never follow the trader who doesn’t set stop/loss, because it is potentially unlimited risk.
– Drawdown: Remember you will face at least the same level of drawdown if they use the same strategy, obviously you don’t want to follow the trader who experienced over 20% drawdown in the past.
– Not Many Open Trades: Watch the trader who constantly hold many open traders (it can also be observed as the difference between total equity & realized equity) due to various reasons such as Martingale tactics (gamble approch means extremely risky), manipulating winning ratio and huge future drawdown risk (because they may hold on to losing positions until they eventually turn positive again) etc.
– Winning Rate: Be cautios about too high close to 100% because it could be tricked by the above open trades.
– Average Gain/Loss Pip Size: If it’s very small (like scalping strategy), your actual result will be significantly different from the trader’s one due to the slippage
– Clear Strategy: Know & Understand your trader’s strategy to achieve appropriate diversification.
– Communication: Choose the trader who frequently keeps you up-to-date with their strategy and market views (especially the comment on loss & behavior during a loosing streak), which proves their ability to react and adjust their strategy when new market conditions occur.
Unique Methods To Find The Best Traders
Firstly, remember that anyone can be a Signal Provider in Zulu Trade, and importantly Zulu Trade allows signal providers to use their demo account to be copied by others, means signal providers can attract other traders without risking their own money. As a result, massive number of traders become signal provider to earn commission (half a pip for each sell & buy trade, which is paid only at the end of month & only paid if the signal provider is profit), so pro & amateur are jumbled together which reminds you of the criticality of selecting good signal provider.
5 Most Logical Process To Seive Top Traders
1) Go to Traders section where you find a huge list of Signal Providers. Use Search Function rather than checking the endless list of signal providers. To find the Search Panel, click the orange gear icon next to “Search” box at the right top as shown in the below;
2) In the search panel, set;
– Running Weeks: Minimum 60 weeks (means at least over 1 year)
– Max Drawdown: 15%
– Win Rate: 55 – 90%
– Trader Slippage: up to 3
– Tick: “are in the top 100 ” & “have approved photo and description ” & “have been rated by followers ” & “have live users subscribed”
, as hown in the below screen;
* Note – the above setting is my personal preference as a conservative trader (low drawdown is almost equal to low return) so it is just an indicative number and nothing else, if you prefer more aggressive approach do it freely.
Then the list would be significantly limited, probably up to less than 10 signal providers.
3) Record the signal providers of 2), then move to “Followers”.
It’s a unique feature in Zulu Trade, you can view a table with the performance of the followers (namely other people investing on ZuluTrade) You can check several KPI (Key Performance Indicators) such as ROI and their portfolio including both past & current Signal Providers they copy as well as their risk settings do they use. BTW, in order to find Followers, click the Follower button next to Traders button on the left side near top as below;
Select the follower who has:
– Over 100 weeks trading record
– Annualized ROI ranges between 40% and 100%
* Note – again above filtering is my personal preference as a conservative trader, if you prefer more aggressive approach increase the ROI% freely.
Then, check their past & current Signal Providers they copy and analyze their risk setting which will enable you to;
– tally your selected Signal Providers in 1) – 2) and the Signal Providers you found here, and develop short-list that are appeared in both which may limit the list into less than 5
– have better insight on how the successful followers manage their account
4) So far, you have recorded probably 10+ Signal Providers based on quantitative screening. Then you need to make final selection to say 3 – 4 signal providers.
* Note – again 3 – 4 different trading is my personal preference of diversification princile, if you want to increase, do it feely, but suggest not limiting only 1 – 2 signal providers from risk management perspective.
This is the stage you should conduct qualitative analysis to review communication between signal providers and followers / rating score done by followers on top of the further statistical analysis. Click the Signal Provider name you have reserved, then you will see the information as below;
Given the abundance of accessible data, if you’re experienced trader you can throughly analyze the signal provider. If you are novice or don’t have enough time to study all the data, try to make a combination of signal providers who are;
– different strategy (for example, not all signal providers take scalping strategy)
– different currency pair (not all signal providers trade only USD/EUR etc.)
5) Finally decide 3-4 Providers for your Portfolio & start copying in your DEMO ACCOUNT (Click HERE) Ensure not directly into real account with real money & Regular Monitoring (at least 1-2 times / week).
In comparison with Zulu Trade, the Popular Investors data is unfortunately limited, especially for the maximum trading period accessible is 3 years. However, unlike Zulu Trade Signal Provider who can use demo account, eToro Traders need to trade their own real money and the fact that their commission are paid based on the consistency of their performance rather than simple profitable trading, which can obviously enhance the credibility of Popular Traders. Yet, all in all, given the lack of advanced filters like Gulu Trade and the little transparency of the return %, the best search seems to be finding relatively better Popular Traders and not use any return expectation based on the available statistics.
5 Specific Process To Choose Top Investors
The above “Popular Searches” is eToro’s preset criteria to see the Investors straightaway though, you may want to use your customized Filtering by using the “Search for People” function which is located just below the “Popular Searches” on the same page, you will find the below paragraph;
– I’m looking for people from everywhere, who invest in anything, and gained at least 1% during the Last 6 months and didn’t lose more than 5% in any week during this period. You can change the blue colour part and my preference is setting:
– I’m looking for people from everywhere, who invest in anything and gained at least 10% during the Last 1 year and didn’t lose more than 10% in any week during this period. Then you will get filtered list as below;
You may want to exclude the investors who:
– gain over 200% (too aggressive)
– over 5% daily drawdown (too risky)
– with very few copiers (need to check the reason why)
, then the list may be limited to around 10 Popular Investors.
2) Go to the detail profile & trading performance of each selected Popular Investors by just clicking their name in the list.
Now, suggest you check the results up to maximum period you can check by going to Stats;
Confirm if their trading results are consistent all through the trading periods;
3) Now, let’s go back to “Discover People” page, and this time you choose “Active investors who copy others ” in Popular Searches section – this is similar function of “Follower” in Zulu Trade. It shows the list of investors whose portfolio composes minimum 50% copying, as below (since default setting is last 6 month period, suggest you re-set Last Year at the left column);
Then, check who they are copying to achieve good result. In order to check it, go to Portfolio Section of each Popular Investor where you can see the exact allocation as;
Like what was explained in Zulu Trade Followers, you may also analyze their risk setting to learn how the successful followers manage their account.
At the same time, tally your selected Popular Investors in 1) – 2) and the Popular Investors you found here, and develop short-list that are appeared in both which may limit the list further though, just in case the Popular Investors they copy are the ones you have missed in your 1) – 2) screening, you may want to evaluate them as well at this stage.
4) By now, you have short listed to probably around 5+ Popular Investors, and you may want to finally limit to 3 – 4 in your portfolio as the same rationale of Zulu Trade case – anyhow remember that you’re only able to allocate a maximum of 20% of your equity to one trader set by eToro automatic risk management. Check the Popular Investors profile (like the below image) to evaluate qualitatively and adapt the same notion of Zulu Trade to make a combination of Popular Investors who are;
– different time frame (extremely short-term such as scalping or short-term & long-term)
– different currency pair (not all signal providers trade onlu USD/EUR etc.)
, to create so-called People Portfolio;
5) Start copying in your DEMO ACCOUNT (Click HERE) Make sure not directly into real account with real money & Regular Monitoring (at least 1-2 times / week). This will give you the best & true picture which may be different from what you saw in their statistics page.
eToro OR Zulu Trade?
Now, some of you may wonder which to be chosen, Zuru Trade or eTro? When it comes to the superiority of the final result, it fully depends on the quality of the traders you select to copy and the risk you’re willing to take, therefore no straight answers but simply put;
– eToro for Novice Players
– Zulu Trade for Experienced Players
Don’t get me wrong, I’m neither saying eToro doesn’t work for experienced players nor newbies can’t trade in Zulu Trade. My point is that eToro has advantage in simple setting & training resources which are good for novice players while ZuluTrade is strong in customized setting for trade & risk management which suit experienced players.
Regarding the comparison of these 2 social trading platforms, see the below comparison table, which I excerpted from fxsignalfactory.com (Click HERE) since I found it very comprehensive;
However, allow me to share some observation on the traders in each platform as follows;
The eToro traders seem to be longer term traders. They have to start trading with their own money (though once they get copiers they can trade with the bonus money they get) and tend to leave positions open over a longer duration of time. Because the trades in your eToro account are executed proportionally and you can only invest 20% maximum per single trader, your total account gains and losses will normally be smaller than with ZuluTrade. Because people can become traders on ZuluTrade using demo accounts and several use trading robots (which automatically execute trades) there tends to be a higher amount of risky traders on ZuluTrade.
However the choice of traders is much higher and some also use “real money” accounts. Traders on ZuluTrade also only get their commissions paid in months they’re profitable, so their incentive is to be consistent. In addition, the amount you risk is ultimately up to you depending on how much you invest per trade. In theory you can double your account in 1 day, though you’re also as likely to lose that money in 1 day if that’s the risk you take.
With regards to performance, if you’re looking for exceptional results and are willing to take the risk associated with it then ZuluTrade would be the better network because they allow you to leverage your capital more and take more risk per trader. If you want a more managed approach which automatically limits the risk you can take then eToro would be better solution.
Bottom-line, it’s difficult to call one of these networks better than the other. In the meantime, since both offers Free Demo Accounts, search the best traders using the above process and practice to see how it works with virtual money. Never ever put your hard working money before you feel comfortable & Confident. Once you get familiar with the system, you may have better idea about which is for you, or you may eventually want to use Both to achieve as a course of your Diversification.
Finally, FBI agent Sean O’Riley who chased & captured the con man ultimately befriended Frank, see the below picture (Shea second from the right poses with Frank Abagnale first on the left and some Bureau colleagues). Frank spent less than 5 years in prison despite the fact that he had escaped from the police custody twice, probably because he was so good at check forgery that the FBI eventually turned to him to help in catching other check forgers. He is currently a consultant and lecturer for the FBI academy also runs a financial fraud consultancy company and issued several books as below image. He commented “What I did in my youth is hundreds of times easier today. Technology breeds crime.”. I don’t believe you should worry so much about honesty of eToro / Zulu trade though there are yet so many dishonest traders whose motive is just to earn commission from honest followers by making the best use of technology. Master the way to identify the best traders which will automatically allow you to master The Art Of The Protection.
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