Copy trading can be a useful way to start trading without having to put a lot of effort into researching markets. All it requires you to do is choose an expert investor who has the same trading priorities as you, and then make the same trades as them. Besides being easy to get started with, it has other advantages like being automated, so you don’t have to spend a lot of time managing your trades. It also prevents you from letting your emotions get in the way. To make the most of copy trading, here are a few tips.
Look Up An Investor’s Previous Strategies and Trades
Let’s start with the most basic thing: the investor you’re copying. The Copy Trading Critic would argue that it’s crucial to choose the right investor to copy from. It’s important that you look at the investor’s trading history to get an overview of their investment activity. Ideally, they should have over a hundred closed trades, a steady increase in profits, and a good amount of copiers.
While a trader with a high number of copiers is a good way to gauge their expertise, it’s better to see how much their copiers are willing to invest. This will be a good indicator of how much they trust the investor in question. Once you finally decide to follow a specific trader, it’s important that you trust the process and give it some time. If you expect to make huge returns overnight, you’re setting yourself up for disappointment
Reinvest Gains and Understand the Strategy
While copy trading is mostly automated, you should come back to adjust your risk limits as per your changing priorities. If you want to allocate more funds towards a certain trade, you can make those changes as well. A highly recommended tip is to reinvest your profits into your copy trading account so you can make more gains. If the market allows for highly lucrative trades, it’s imperative that you make the most of the opportunity.
While it’s not exactly related to copy trading, another great tip involves understanding the potential strategy behind an investor’s trades. Even though copy trading doesn’t give details about the investor’s entire strategy, a good way to do this is to keep a record of all your trades on a spreadsheet and see if they line up with current market trends. Once you start to see a pattern, you’ll be able to understand why the investor you’re copying is making these trades in the first place.
Avoid Traders With a Short Record
When you join one of the top copy trading brokers, you’ll be asked to choose certain metrics, which helps in narrowing down a list of potential investors you can follow. Upon getting this list, it’s imperative that you know who to not follow. This is an effective way to filter out the top investors in the market. You should make sure to avoid investors with a short trading record. At the very least, they should have a trading history of a couple of months to half a year.
This is a good way to choose a trader who has more experience. Additionally, steer clear of investors who show super high gains over a short period. There could be a chance that their success is attributed to good luck as opposed to an effective strategy. In the same way, you don’t want to follow someone with a highly fluctuating profit chart. If their profit chart sporadically goes up and down, it could mean that they’re taking a gamble on market conditions instead of preparing a proper strategy.
Bottom Line
All things considered, copy trading is one of the best ways for beginner traders to get started with investing in different markets. Just make sure that you choose the right investor to follow and try to understand the underlying strategy behind their trades. Moreover, avoid traders with a short record and fluctuating profit charts.