Copy trading is one of the techniques that a trader can use to refine his strategy and increase his chances of success in the world of online trading
The principle is simple: use the technique of a reputable trader to optimize your own transactions. So how do you select the trader to follow via this technique?
Who to follow in copy trading?
With copy trading, the trader makes sure to follow a quality trader and be inspired by his techniques. More precisely, he will follow the “trading signals” that will be provided to him. The provider of this information is considered a “guru”. It is then in his best interest to select a talented investor. It will have to meet different criteria. At brokers like eToro, you can see all the profiles and criteria of the traders present on this platform. As a first step, it is necessary to ensure that the candidate has experience (at least 12 months).
The more years of experience he has, the more trustworthy he is and the more reliable his analyses can be. In addition, it will be possible to better estimate your skills in all possible market conditions (upward or downward trend, no trend…).
The right criteria to choose the trader to follow
In addition to experience, there is still a fairly long list of essential criteria that must be met by the trader who is to be followed and whose strategies are to be copied. First, the return on investment (or ROI) must be stable over a long period of time.
Secondly, the trader must have an interesting strategy: not only take into account graphic and technical analyses but also take into account the most important economic news. Then, it is interesting to check the trader’s procedure knowing that some people share their tactics on their profile.
To select the trader we are going to copy, it is also wise to analyze how he takes risks: is he being bold? Does he use safety nets? How to control risks?
Another important criterion is the trader’s success rate: it is only worthwhile if he has a high percentage of gains rather than losses. A rate exceeding 80% is quite correct. In general, an interesting trader manages risk well while limiting potential losses through a diversified portfolio.
At the same time, it is essential to observe the history of trades to see how transactions are conducted, at what frequencies and above all for what success. In addition to analyzing successes, it is also necessary to take a close look at negative experiences and losses and identify the strategy to avoid.
Finally, a good trader is generally very popular. If it is very well attended, it is an excellent sign. At the same time, it is preferable to systematically move away from traders who seem to have “slipped”, in terms of their trading strategy or psychology. If they scatter, it’s better to leave them out.