Earning With SignalsThe Best Way To Make Profitsfrom Signals
Do you want to trust the signal providers and copy their trading strategy?
Very well, this tactic is definitely one of the best, but it's important to follow a precise method: you do not have to try out one at a time, but you need to follow different signal providers simultaneously,by creating a portfolio of 3 signal providers... this is important for 2 reasons:
- Comparing them simultaneously (during the same market cycles) means being able to give an objective assessment of the quality of service, and make better decisions.
- Following multiple vendors/signal providers means combining different market strategies,balancing risks during negative periods.
Both professional traders and automated trading systems, which provide the trading signals, are based on precise strategies which do not provide constant results:
Many strategies, even though with fairly good long-term results, go through positive and negative months according to market trends, therefore a signal service can’t be judged for doing bad for a negative period of a few weeks.
Therefore, to rely solely on a single signal provider means to be at the mercy of her results, both positive and negative.
The ideal solution in order to earn steadily is to take cover by subscribing to multiple signal providers, thereby creating a diversified portfolio.If the strategy of one of our vendors goes through a negative period or drawdown, there will be other signal providers that will balance the situation reducing the risk of account ruin.
Warning: if two or more signal providerssend similar signals (i.e. we receive them at the same time, in the same assets, on the same timeframe ...), it’s advised to delete one in order to avoid doubling the risks.
One important tip is to balance the amount of investments "dynamically", based on low performance, for example:
- If one of the vendors is experiencing a negative period/drawdown, the amount of investment on its signals must be reduced.
- If one of the vendors/signal providers is experiencing a positive period, the amount of investment on its signals can be increased
The ultimate goal is to carry out amonthly reviewof ourportfolio and conclude on how satisfactory the results of our signal service providers are, especially if there is a need to replace one of our providers.
For this reason, two graphs with the signal performanceshould be created:
- The first graph shows a single line of average equity curve, representing the sum of the signals of all three suppliers, so we can see if our signal mix is working well or needs to be revised or improved.
2. The second graph shows the trends of three signal providers, making a comparison of their individual equity curve. This way you can evaluate which vendor has performed badly, and you can decide whether to replace it or not.
3. The third option shows the three trends with the average of the three between them (the black line in the image)
From the chart above, signal that fall below the average of the equity curve should have their lot size allocation reduced; while those above the average should have theirs increased. This should also be varied based on further analysis of the signal provider. Mean reversion signals may require you taking profits, or reduce the lot size and risks as it moves further away from the average.
the Analyst's answerJean Grossett - Financial analyst
As illustrated above, it is obvious that a little effort on the part of every newbie and seasoned trader is required in order to achieve consistent profits. Trade signals should not be viewed simply as a plug and play action. Carrying out the above procedures are similar to analyzing different currency pairs, but this time focusing on the ones that trend most in the form of signal service providers.
In conclusion, trading strategies involves the analysis of more global market sentiments, while following signal services involves the analysis of the equity curve of individual or group of signal service providers, along with other risk metrics.
the Manager's answerRobert Danvil - Investment Manager
Following signal service providers that give insights into the types of strategy they deploy, will also help in knowing if it is reliable as well as measuring how risky it is.
Further research into the analysis of other risk metrics such as MAE and Drawdown should be carried out.