It’s easy enough to understand why copy trading continues to gain in popularity. Not only does imitating market experts help limit losses, save time, identify key trends, learn how to trade, and more, it’s a great way to dive right into trading even if you’re new. Once you spend some time following the copy trading strategies of successful traders, you’ll gain fresh insight into key concepts like position sizing, setting stops, and exit strategies. Copy trading is one of the most effective ways to learn from experts while testing out your own systems. It’s not an all-or-nothing proposition. Indeed, many people who follow experts also make a few of their own trades at the same time. There’s no law that says you have to do one or the other. If you’ve been wondering how to go about the process correctly, here are six key points that can help you get started, get comfortable, and earn money while doing so.
Perhaps the most essential step is figuring out how to find trading leaders to follow. Some platforms list hundreds of them, so you need some quick methods for narrowing down the selections and identifying worthy candidates. First off, you’ll want to match up with someone who’s risk tolerance is the same as yours. Next, examine the success rate, level of experience, and preferred markets of the leaders. For example, if your brokerage platform lists 50 people you can follow, you might find one whose tastes match yours closely. If you enjoy the health care sector, prefer to take moderate risks, only make a few trades per week, and prefer short holding times, it’s possible to find someone whose profile fits that outline in many cases. Additionally, most new account holders want to follow an expert who has several years of experience and posts a profitable history report. The vital point is to study the information provided about each expert and find one that meets all your requirements.
Measure Results Carefully
Once you sign up to follow someone, be diligent about measuring results and following the action. Even if your day job only allows for after-market analysis, spend time in the evening studying the day’s action. See what the expert bought or sold. Research the companies that are in your portfolio, even though you didn’t decide on which securities to purchase. It’s essential to remember that even though you’re basically letting someone else trade for you, it’s still your money on the line.
Diversity Your Group
There’s no reason to put all your eggs in one basket. In other words, choose two, three, or more professionals to emulate. This is an excellent way to diversify your holdings and minimize risk. However, don’t enroll with multiple leaders just for the sake of diversification. Be careful to screen each one so they meet your core risk, success, experience, and sector requirements. There is power in diversifying as long as you don’t ignore the core concepts of diligent screening.
Diversity Your Markets
It’s up to you, of course, how much diversification you want. Many new account holders like to go the safe route. Often, that entails not only emulating several experts but also operating in two or more markets. If health care, for example, is having a horrible month, it won’t matter who you follow. But seldom do multiple markets do poorly or well at the exact same time. Consider using the multiple market strategy to spread out holdings and minimize risk even further.
Practice with a Demo Account
Explore the workings of your brokerage platform’s demo account arrangement. Most offer new customers the chance to work with fictitious funds just to get the feel for placing orders, signing on with trade leaders, and understanding the mechanics of everyday market action. The beauty of the demo account is that you can also practice leader selection. Choose a few experts to follow based on your own parameters and requirements, sign on with them in your demo account, and learn how the process works. It’s always a good idea to practice, especially when there’s no cost and you learn a few things at the same time.
Re-Evaluate Every Month
Even after you’ve put several months or years of experience behind you, it’s wise to re-evaluate your leader-expert’s results at least once per month, if not more often. Even the best market analysts have their bad days, weeks, and months, so remember to do a check-up of all your copy trade accounts regularly. If something looks off or it appears that a particular leader is not a good match for you, it’s easy to unsubscribe from following them.