Brief description
In their own words “Night trading strategy on the EURUSD pair. Trading in the early hours to avoid volatility we aim to gain nightly pips. A number of filters are used for entries and several positions may be opened in order to catch the trend.”
What is also obvious is that the Stop Loss is set to 150 pips and the Take Profit is set to 6 or 7 pips. The trades are all made between 23:00 GMT and 01:00 GMT the next morning. The trader has been active and posting results since 19/03/2018. A maximum of 8 trades are placed each night.
Because of the huge Stop Loss and low Take Profit settings, this strategy relies on having an extraordinarily high win rate to make a profit. ZuluTrade list the trade success rate as 99%. Out of 556 trades, ThePipsMasterUK lost 8 trades, with the highest loss being 5.6 pips on 30/03/2018. That’s a win rate of 98.56%. I guess they round up. What is also clear here is that these losing trades did not hit the stop loss, or the loss would have been much greater. Either this is due to closing out winning trades but getting a high slippage, or the strategy employs some other means to cancel losing trades with minimum loss before hitting the stop loss to protect investor capital. There is about 7.4 million pounds in outside capital following this strategy, at the time of writing, according to ZuluTrade.
Some of the data given by ZuluTrade seems unreliable, for example the ‘LIVE INVESTORS PROFIT’ figures seem to vary wildly by several $100,000 each day. The BEST TRADE is listed as 33.6 Pips which it isn’t and the WORST TRADE is listed as -85.2 Pips which it isn’t either.
In more detail
If you read the ‘Social’ (discussion) section on ZuluTrade, some of the contributors believe that this trader is simply using a MetaTrader 4 EA (expert advisor). One poster mentioned a ‘$99 EA’. So, I went off looking for such an EA. There are various ‘night scalping’ EAs on the MQL5 marketplace, but only one I can find is $99. Hamster Scalper M5:
https://www.mql5.com/en/market/product/27185
I downloaded a demo copy for free. I can’t see the logic inside this EA because the source code is not available. In fact, even if you buy it you will not be able to see the logic/source code. However, some of the logic seems fairly obvious from the input parameters. You have parameters for an RSI Indicator, 2 ATR indicators, and a news filter. A less obvious one is a parameter for ‘Wednesday logic’ which apparently if set to ‘true’ just means the EA won’t trade on Wednesdays. There is also a settings (.set) file available which most users seem to be using to optimally set these parameters for you. This consists of settings for:
- Max trades: 8
- Start Time: 23:00 GMT
- End Time 01:00 GMT
- RSI Periods:7
- RSI Oversold level (buy signal): 40
- RSI Overbought level (sell signal): 80
It’s also worth noting that the RSI indicator is based on Bar Open prices, not the default Bar Close prices.
- ATR (#1) periods: 15
- ATR (#1) upper level: 100
- ATR (#1) lower level: 10
You actually have to divide these values by 100,000 to compare them to the actual values given by an ATR indicator. I am assuming that these are based on an ATR indicator on the M5 chart.
- ATR (#2) periods: 15
- ATR (#2) upper level: 100
- ATR (#2) lower level: 10
I am not sure which chart this 2nd ATR indicator operates on
- News filter settings which can close trades and prevent trades from opening in advance of important news. These setting are quite obvious
- Wednesday Logic: False
Let’s look at a few trades by ThePipsMasterUK:
As you can see, the trades made are exactly when the RSI(7, open prices, M5 chart) fall below the 40 level and also, the ATR is between the values I mentioned above.
There is therefore some evidence that ThePipsMasterUK is using this EA or something very similar.
Now, let’s test the strategy using an EA I created myself. Actually, it’s a Cbot created for the CTrader platform, which I prefer to MetaTrader. This is backtesting from the date ThePipsMasterUK started and the present day:
So, from an investment of $10,000 you would be up to $28,000 in this short time using this CBot I wrote in about 1 hr. This is trading 1 full lot each time. There’s some obvious differences, my Cbot hit the stop-loss a couple of times and took a big loss. Out of interest, prior to this, I made a Cbot which just opened random trades between 23:00 and 01:00 GMT and the results were almost as good, so I’m not convinced that the indictors are actually doing a lot of good. It’s just the nature of the market during this period – it has always traded over the same ground as the night (Asian session) market over this period later in the night and during the day.
ThePipsMasterUK does apply a little bit of extra management on top of the EA, and doesn’t always leave it to run every evening if the market is expected to be especially volatile. For example he recently suspended trading for a couple of evenings due to the US Mid-Term elections and DST changeover. This is quite sensible, and might explain why I got a couple of losses in my backtest.
I live tested my Cbot for a few days, and so far its making trades at exactly the the same time as ThePipsMasterUK. But let’s look a bit further back in history, this chart is from 26/04/2013 until the present day:
I had to set the starting capital higher to avoid a margin call. I think that you can see that this strategy has been doing extraordinarily well recently but for most of history it has been terrible. The straight line up (going to the moon) you see on the right hand side of the chart starts at around the end of May 2017. Now maybe The PipsMasterUK and the Hamster EA (are they one and the same?) would have mitigated these losses using logic I haven’t been able to work out, but it seems to me that I did work out the main parts of the strategy and it is just working well at the moment (who knows why it started or when it will finish?). This is a very high risk strategy, it is riding a wave at the moment, and who knows when it will end? It’s like a lottery.
Now let’s take a look at ZuluTrade fees and execution. You will pay 1.5 pips for every trade for a start. Since the amount the strategy makes for each win is only 6-7 pips, 1.5 pips is a huge percentage. I connected with ZuluTrade using the IC Markets broker and I lost another 1-2 pips per trade due to slippage on each of the ThePipsMasterUK’s trades. So while the main page for this signal provider will say that it’s making 6-7 pips per trade, you may be making as low as 3-4 pips per trade.
Conclusion
The strategy is very very high risk. The risk is not represented in the ZuluTrade metrics because they only go off the historical performance of the trader (signal provider) since they started. Don’t risk your life’s savings on this. It only gets riskier when you consider that this strategy relies on making lots and lots of small wins to mitigate against the huge loss posed by the massive 150 pips stop loss, but you are making an even smaller win each trade due to the ZuluTrade fee of 1.5 pips and potential slippage. Make sure you have enough in your account balance to handle the drawdown for the bad times. You might ride the wave and make a lot of money, or it might crash and burn at any point. In my opinion, the trader doesn’t know, and will not warn you when it’s going to go pear shaped. It’s possible that the ZuluTrade trader and the MT4 EA (Hamster Scalper) have some extra logic to minimize losses, but I think most of the reason for the success is that the markets recently have just been kind to this strategy. It may also be self-fulfilling, because there is a huge amount of capital using this strategy which might even be moving the market itself.
So a trader and signal provider might be in charge of over 7 million pounds of outside capital, and might just be using a $99 MT4 EA – kinda funny.
Update: 13/11/18
I find that the take profit settings on the Hamster EA are quite different from my CBot. On my Cbot I just scalp for 6 pips profit each time. But Hamster has 2 options:
- “Lossless”
- “From Last Order”
I think that this refers to open positions only, while standard TP is 6 (while no previous orders are open). But I am not 100% sure. Maybe it doesn’t just apply to currently open positions, but I can’t imagine it works on closed orders (even in loss). I will work on this.
There are some other differences between Hamster and my ‘Gerbil’ Cbot:
- No news filter (in fact I don’t think many people use this, but manually pause the EA on days of high volatility
- I don’t use ‘virtual’ SL or TP. I set the SL and TP on the order. I did this because it’s easier and I don’t use a VPS. I just have a laptop running in the garage for live trading, but it’s on Windows 10 and it resets itself for Windows Update all the time, so Virtual TP and SL is dangerous because it must be always online.