How to use ZuluGuard, Trailing Stop, Offset Pips and Pips Spacing
In the previous lesson we looked at all the parameters on which we can intervene in the “Settings” section of our Zulutrade investment account.
We have, however, left behind four tools that are worth a separate discussion, and which are the last four Zulutrade creations.
We are talking about the ZuluGuard, Offset pips, Pips Spacing and Trailing Stop functions. Let’s start from the latter.
The trailing stop is one of the latest additions made by Zulutrade to its already professional and very adaptable platform.
We need to start by explaining what a trailing stop is in the first place, and how it works.
The trailing stop is a dynamic and automatic stop which is used with the aim of leaving profits run and cutting losses.
When you set a normal stop loss you are deciding at what level the transaction will be closed, then what will be the potential loss.
With a trailing stop instead things get more interesting. For example, if you set a trailing stop at 50 pips, and your trade goes in the right direction and arrives at a profit of 50 pips, the system, at that point, should have automatically moved your stop at break even, by pulling it, while the price was rising, one pip at a time for 50 pips towards your market entry price. If the trade continues to increase profit, let’s say to 70 pips, the system would shift automatically stop at +20 pips profit.
In practice, when the trade is opened with the trailing stop order entered, as soon as the trade gains even one single pip the stop will be pulled of one pip, so at that point it would no longer stop at -50 pips, but at -49. And if the trade would earn another pip, the stop would move to -48, and so on.
The interesting thing is that the trailing stop follows the price every time it moves increasing our profit, but on the other hand, when it comes back against our direction, then the stop remains firm to the last price level touched. In our example, if after gaining 2 pips the price had gone back 10 pips, our stop would still have been at -48 pips from the entry price.
Trailing stop for helping profits
The trailing stop is a stop level that dynamically follows price in its progression. If the price goes in the right direction of the trade, consequently the stop will automatically move, with a distance level decided by you, as in the example 50 pips. If the price should go against the trade, the stop remains fixed and would be activated if the price would go in the opposite direction of the amount of pips decided by you. This is a classic example of what is meant by “Cut the losses and let the profits run.”
The trailing stop, if properly set, could potentially follow the development of the trade and properly close the operation when the trend movement would be actually finished. And the best thing is that it would do everything automatically, no need for you to manually change the stop loss level.
Zulutrade gives you the chance to use this interesting trading tool with the operations of your Signal Providers.
To use this function, you must obviously go in the “Settings” tab. In the Stop column you can find also a “T” symbol next to the “Safe” button. That is the Trailing Stop function.
How does this work? Let’s say you want all the operations of that Signal Provider to have a trailing stop at 50 pips. Just enter 50 in the appropriate box, and click on the “T”, so that it changes color. From that moment on, the Trailing Stop is activated, and each new trade will have this function.
The Trailing stop function can be also implemented per individual transaction. Of course, having to act on a single operation, you have to go to in the “Positions” tab of your account.
Once inside, you can access the trailing stop function for each transaction by clicking on the corresponding stop loss value. A window will pop up where you can interact in different ways with the stop loss.
With Stop Value you can enter the price level at which you want the trade to be stopped out.
With Stop Pips, instead of deciding the price level, you can decide the amount of pips you want the stop loss to be.
Finally, you can enable or disable Trailing Stop function with On/Off, and decide the number of pips.
Once you have made your decision, simply press “Set”, and Zulutrade will save and use your new settings.
To use with caution
To use a trailing stop is definitely a great opportunity to try to improve the performance and the risk protection, but keep in mind two things:
1) You have to know how to use logically and with informed basis. If used too much, and without judgment, is likely to cause more harm than good. Always remember that the strategy of a serious trader has been built according to the statistics. Often, it’s the statistics that says that the stop level should be that number of pips, and that it must remain fixed, because only this way you can get statistically the performance of high profit and low risk to which the strategy aims.
2) In addition to point 1, if you use a too tight trailing stop, you risks to block too early the trade’s life. On one hand you could save some pip of stop, and this could be a good thing. But on the other hand, almost certainly, you will also stop some of the operations that would have made a lot of pips in profit. Don’t underestimate this point. Doing this type of work involves changing strongly the risk/return parameters of a strategy. For many traders and many strategies the risk/return is everything, even more important than when, how and why to open a trade.
For these reasons, in order to properly use the trailing stop, you need a certain level of in-depth knowledge of the Signal Provider’s strategy. Without that it would be dangerous because of the above.
In the Investing Gold section we treat this topic in depth, in order to give way to reason in the right manner, and understand if and how it’s appropriate to use the trailing stop.
Let move to Offset Pips, by far the newest Zulutrade innovation.
With this function, you can choose to replicate the trades of a Signal Provider at a different price from the Signal Provider’s one, for a number of pips corresponding to the value you entered.
To explain it better, if you enter -10 of Offset Pips and the Signal Provider opens a trade, that trade will not be immediately replicated into your account, but Zulutrade will wait to see if the trade reaches -10 pips of drawdown, and then, only then, it will open the trade also in your account. Of course, your trade opening price at that point will not be the same as the Signal Provider’s one.
Conversely, with a positive value of +10, if the Signal Provider’s trade should reach +10 pips profit, Zulutrade will proceed with the replication by opening that trade on your account.
So, when you work negative, trades are opened at a better price than the Signal Provider’s one, vice versa, when you work positive, at a worse price.
To choose whether to work in positive or negative, and for how many pips, you must be familiar with the Signal Provider ‘s operation, so you can optimize it. If you don’t know it in detail, rather than optimize it you run the same risks discussed a little while ago about trailing stop.
Always remember that a serious trader has tested its strategy on long and complete historical data, so the strategy is already optimized to work on different scenarios. This does not mean that we cannot possibly improve it a little bit with our settings, but you definitely have to proceed with caution and after investigation.
Accessible only from the custom settings for the currency pair, Pips Spacing is the absolute last tool implemented by ZuluTrade.
This new feature may serve to limit the actions of a Signal Provider, and it works especially well with all those traders who tend to open several trade all at the same or similar price level.
Sometimes it’s about strategy, which tells that once an entry setup is found, the trader should enter the market with multiple operations at the same level to close them later at different time or targets. Many other times instead, once a entry setup is found, the Signal Provider places several operations at the same level simply to increase the number of commissions earned through the replication of other investors, without a real strategic reason (we talked about it in this post on Social Trading risk factor).
The operation is simple. Given that there is already an open operation in the market, you just have to set the minimum number of pips of difference that the entry price of the new trade must have form the entry price of the position already in the market. Same story for a pending order.
Let’s say we have a trade open at 1.5000 and a Pip Spacing of 20 pips. If the Signal Provider should open any type of trade, whether it is Long or Short, spot or pending, with a price ranging between 1.4980 and 1.5020, those trades will not be replicated on your account. Should he open trades with price from 1.5021 upwards or 1.4979 downwards, those trades will be replicated on your account.
The ZULUGUARD tool
Zuluguard is one of the Zulutrade attempts to provide the inexperienced follower investor with an automatic risk management tool. The Zuluguard assumption is very good and its usefulness is that we can automate some actions, authorizing Zulutrade to do them for us.
To use the function just click on the orange shield, and it a pop-up window with the setup panel will open.
The parameters on which Zuluguard works are three: the Capital Protection, the Single Trade Protection, the Max Open Trade Protection.
For each of these three parameters you can choose a specific protection level identified by a number, at which you can tell Zulutrade to carry up to 3 programmed actions:
– Close all trader’s trade: when reaching the security level, Zuluguard will be activated and all the Signal Provider’s operations will be closed permanently.
– Disable the trader: the trader will be disabled and his signals will no longer be replicated. However, if you have not selected the first option too, his open trades will not be closed and you will need to handle them.
– Replace the trader with equal or better ZuluRanked trader: the senseless option. If, and only if, you have selected also the second option that disconnects the Signal Provider from your account, you can select the third and let ZuluTrade automatically propose a new Signal Provider for you, in your portfolio. If so, then you will have to enable him by choosing the lot size and the other possible settings. Obviously, it’s the Zuluguard option you never have to use if you want to become a professional and base your choices on your expertise.
The Zuluguard’s intervention parameters
Let’s see now one by one the three parameters on which ZuluGuard can be activated.
– Capital Protection
This tool works as a trailing stop, but used on all your capital, therefore on the balance of money earned through that Signal Provider. As seen earlier, the trailing stop is a preset dynamic stop, that moves following the increase in profits, but on the contrary, doesn’t ever go back in case of losses.
In practice, it’s the maximum amount of money you are willing to lose with the Signal Provider. Let’s make an example. You have set a $ 1,000 Capital Protection. The trader works and earns $ 2,000. But then he begins to lose, making you lose as well $ 1,500, therefore with a balance went from 2,000 to 5,00. Hold on! This is what would have happened without the Capital Protection. With the security level at $ 1,000 instead, Zulutrade would have acted (in this case it’s recommended making it close all positions) as soon as the amount of the fluctuating losses, ie opened, had reached -1,000 $. This means that you would not have found the balance to $ 500, but at $ 1,000 (2,000-1,000 = 1,000).
In addition, it’s a dynamic stop. Let’s assume the trader does not make you lose $ 1,000, but instead he makes you earn $ 2,000 more, bringing the total to $ 4,000. At this point, the worst-case scenario in which you may come across would be to find the account at 3,000 (4,000 reached – 1,000 of Capital Protection), because, should that threshold been reached, Zuluguard will intervene to protect your profits.
Should be noted that you have to consider not only how many pips the Signal Provider lose, but above all what is the lot size you have assigned, because the money you actually lose will depend on both factors.
But be careful, to use too tight values could trigger ZuluGuard too early and unnecessarily. It’s a tool to be used with caution. You will definitely need to consider the classic Max Drawdown value (not the Zulutrade’s one) to use it wisely.
– Single trade protection
This type of ZuluGuard protection acts on each trade opened by the Signal Provider. The number of pips you choose as Single Trade Protection will be the maximum number of pips that ZuluGuard will tolerate before acting according to your choices.
In practice it’s something like the Safe Stop, the option we saw in the Settings chapter. In this case, however, not only you can close that operation, but even all of them, if not directly disconnecting the trader.
– Max Open Trades Protection
We know that, in a Signal Provider’s strategy, the maximum number of transactions kept open simultaneously is a fundamental value in order to understand the level of risk.
If you have observed the data of at least one year, we’ll be entitled to think that statistically the Max Open Trades value should be that one, and that it should not change, provided that the Signal Provider doesn’t say differently. Or maybe there can be a Trader’s communication in which he declare precisely how many trades he opens simultaneously in his strategy.
In cases like this, why not use this ZuluGuard protection tool? If the Signal Provider should suddenly increase even of one of his Max Open Trade value, it would mean he’s no longer following his own strategy, or that something very unusual and potentially dangerous is happening, so why not begin with turning him off, and then run to see what’s going on?
ZuluGuard takes action, and also warns you
Among all the three security parameters on which ZuluGuard work, the only actions we use are the first two, “close all trader’s trade” or “disable the Trader.” The third definitely not.
The most interesting thing though, is that when ZuluGuard is activated, you can choose to be notified by email. In this way, even if you’re not the PC, you can quickly go from your smartphone to control what is happening. Especially if you use the “disable the trader” function, the operations will not be closed, but the trader will be temporarily disconnected, in order to prevent him maybe to open more trades, and you will be notified so you can assess the situation, and perhaps find that it has been merely a misunderstanding (it’s only an example, but indeed possible).
In any case, ZuluGuard is a tool that for sure can be useful, but that should be used with caution.
To conclude, for those who are not able to reason about what values should be appropriate, Zulutrade offers its own automatic calculations, to facilitate the choice, which in certain cases may also be an appropriate choice, since in this case is based on clear and simple data.