I may need to remind you that like all
investments, FOREX has its fair share of risks (as well as rewards).
Copy trading does not necessarily mean that you will not have losses,
but when done right it does give you a fair shot at reaping the same
rewards that the master traders benefit from.
Etoro's social trading platform is
called Openbook. To simplify things, Etoro's openbook has an almost
similar platform to that of Facebook. You get to interact with other
traders, like, comment and share other's status. What I also love
about Openbook is that you get to see the trades done by other
traders, drill down further to a trader and study his gains/losses,
overall trading history, the level of risk he/she takes and even copy
their trades.
This brings me to copy trading......
Copy trading has been a messiah for
most traders, especially those who are not confident enough to
venture into forex trading on their own. It does have its ugly side
though if you do not select the right traders to copy.
As a new trader, you want to make sure
that you want to follow a trader who actually knows what they are
doing, and share a similar risk appetite to yours.
This brings me to the criteria I use to
select traders to follow as well as point out some pitfalls that new
copy traders fall into:
- Trading History
You want to know that the trader you
are about to copy has been doing FOREX trading for a while (at least
for a year), while showing a steady uptrend on gains. Pay particular
focus to the last 6 months of the trader's history. There is no harm
if a trader has some losses but shows massive improvements along the
way.
- Risk breakdown
As a new trader, you do not want to
copy a trader with high leveraged trades. Such mistakes could blow
your FOREX account's bank balance. Etoro classifies the risk
breakdown of a trader as LOW, MEDIUM AND HIGH. I'd recommend that
you only copy a trader who does low-risk trades only, but that is not
always possible. Decide on the amount of risk you want to take. I
personally do not copy a trader with less than 80% of low-risk
trades. I can only tolerate no more than 5% of high-risk trades.
THIS IS THE POINT WHERE MOST COPY
TRADERS LOSE THEIR MONEY.
- Copiers
Always check a trader's portfolio for
“copied trades”. You are doing this because you want to copy
traders who are experts in trading, and not those who simply copy
others like you'll be doing. I've seen some copy traders
deciding to rather copy whoever introduced them to the platform, so
that they won't have to go through qualifying traders by themselves.
I have mixed feelings about this approach.
- Open trades
Always lookout for a trader's open
trades. I personally do not copy a trader with open trades older
than a week. This can mean that the trader opened a position hoping
for a particular outcome, however the markets decided to go a
different direction. The trader keeps the position open with the
hopes that eventually he will be in profit. This sounds like
gambling to me.
- Recent results
Over and above the trading history of
the trader, do make a point of studying a trader's recent trades, as
well as the frequency of his trades. When you copy a trader, you
allocate a certain amount to him/her. If the trader is not active,
your allocated amount will be sitting dormant. A trader must do no
less than 3 trades a week.
- Openbook wall
I also study a trader's wall because I
want to see how/if he does interact with his copiers and followers,
whether he has any concern for them and whether they do explain their
strategies and decision making process as well as advise their
followers
It is not difficult at all to find
traders who fit the above criteria. Etoro provides tools for
analysing the traders and their activities. Copy trading is not a
get rich quick scheme. You must review the traders at least once a
week, hire and fire as you see fit and you must always lookout for
new traders to copy. Never make the mistake of allocating all your
balance to one trader.
MOST IMPORTANTLY... you do not need to
use your own money to test out the traders you have chosen. You can
choose to copy a trader using virtual money allocated to your DEMO
trading account.
- Contact me should you need assistance with selecting traders to copy as well as setting up your Etoro account.
