Copy Trading Secrets You Don’t Know
The fact of the matter is that making money through trading, whether stocks, Forex, or anything in between, is very difficult. There have been numerous studies conducted on the matter. Studies show that as much as 97% of traders lose money. For this reason, you might be thinking of trying copy trading.
Copy trading is of course when people simply copy trades that others make. This could be through some kind of forum, a copy trading service, or a signals service that automatically provides traders with signals. That said, there are some really important things that you need to know about copy trading before you give it a shot.
What is Copy Trading?
For those of you who don’t know, copy trading is simply when one trader follows and copies the trades of another trader. In other words, for example, when the lead trader places a buy trade on the EUR/USD pairing, you would do the same.
Even if the lead trader does something like adjusting their stop loss mid trade, you would do the same. Of course, when it comes to copy trading, there are two people involved, these being the leader or master making the original trades, and the follower who copies those trades.
How to Be Successful in Copy Trading
If you plan on engaging in copy trading, there are a few important things that you need to know in order to be successful. Let’s go over some really important copy trading tips right now.
Understand the Trading Strategy Being Used
One of the most important things when it comes to copy trading is for you or the follower to understand what kind of trading strategy is being used, why it is being used, and how it works. For example, if the lead trader is using a trend following strategy, then you need to be aware of this.
It means that you need to know what trends are, what pullbacks and reversal are, what breakouts are, and how trends function in general.
Sure, not knowing about the leader’s strategy might be fine if you are winning consistently. However, if you lose a few trades, you might try to claim that the lead trader’s trend following strategy doesn’t work, when in fact it does. Even if you are doing nothing more than copying trades, it still pays to know what is going on.
Familiarize Yourself with the Person You are Copying from
Another important tip for you to follow when it comes to copy trading is that you should always be familiar with the person whom you are copying trades from. The fact of the matter is that just like in real life and marketing, traders are often nothing more than faces or symbols, not the real deal.
Therefore, if you end up copy trading from some guy that looks the part, but is not actually the real deal, you may end up losing a whole lot of money. The point here is that if you are planning to engage in this type of trading, you need to know the person whom you are copying from.
Simply put, you need to know that the person being copied from has integrity, that they are honest, and that they have real trading skills with the ability to make constant profits. If you end up copying trades from a fraud, then you will end up losing money.
Find Leaders that Have Something to Lose
Yet another tip that you absolutely need to follow when it comes to copy trading is that you need to find a master to copy from that actually has something to lose. In other words, you want to be copying your trades from somebody who has a real stake in it.
For example, let’s take a look at two coffee shops. One coffee shop has an owner with a 75% stake in the company, and the other coffee shop has an owner with a 10% stake in the company. Well, it should be obvious that the owner with a much larger stake in the business is going to make better decisions for the wellbeing of the company.
This is the same with copy trading. You need to copy trades from somebody who has a large stake in the proceedings, from somebody who has something to lose. This way, you can rest assured that they will do the best possible job at all times, and therefore, their trades should be safe to copy.
Use Multiple Masters or Leaders
The next important tip that we can give you when it comes to copy trading is that you should never copy all of your trades from a single source. This is related to stock market diversification. For example, if you put all of your money into oil, and the oil market tanks, you end up losing big.
However, if you have a very diverse investment portfolio, one with many types of assets, even if one tanks, the rest are there to save your skin.
This concept can also be applied to copy trading. If you copy all of your trades from a single source, that source could end up making some fatal mistakes. Maybe that master or source only trades in one specific market, and that can be dangerous.
Therefore, finding several decent sources to copy trades from is essential. You need to be familiar with multiple masters, they should all have vastly different trading styles and strategies, and you should understand all of them. This way, depending on the market conditions, you can copy from the trading master that tends to see the best results in those specific market conditions.
Copy Trading – Final Thoughts
The bottom line with copy trading is that it can be very easy and profitable. However, if you don’t copy your trades from the right sources, and you don’t understand why those trades are being placed, then you can end up in some serious hot water. If you would like to find out more about why traders fail, check out this article.