The short answer is yes.
The long answer is yes, and the reasons why it will help you trade better.
Think back to when you were in school, and you didn’t know how to write. Over time with a lot of practice and copying what you saw in front of you, you succeeded in your writing. The same can be said for much of life – and certainly for copy trading.
When there is a formula in place that works, has a proven track record, then it makes sense to copy it.
But before you jump in head first, you need to know a bit about copy trading in general.
What?
Copy Trading is smart technology. A trader has the option to copy every trade made by another trader. After spending some time researching the trader (usually called a signal provider or strategy providers) in questions, and how they perform, you might decide that you’d like to mimic their success.
Generally, there will be a range of highly qualified traders who are working for a platform. They trade as usual, and their trades are all logged and shared. Other traders then have the option to copy those trades with their own money.
Signal Providers/Strategy Providers
They will be one of the most significant assets in your portfolio. It can sometimes be referred to as a ‘people-based portfolio.’ Every single trader will have a specific trading type and some characteristics that may make them more attractive to you.
Here are some of the techniques that are used:
- Traders that use price action
- Traders that use indicators
- Traders that use fundamental analysis
Most traders will specialize in one of those categories but will be able to use the other two with ease if they choose to.
There may also be a range of horizons that they operate in.
- Day Trader (hourly/daily horizon)
- Swing Trader (daily/weekly horizon)
- Long-term Traders (yearly or monthly horizon)
- Scalper (seconds/minutes horizon)
An investment horizon refers to the length of time that an investor is willing to hold the portfolio for.
You will need to pay attention to a few extra things before you decide which trader you are going to copy.
- How many trades they make on average
- How long the trades are kept open
- Their winning percentage
- Length of time they have been trading
- Do they specialize in one instrument or use multiple
- How many positions are kept open simultaneously
Are There Any Risks?
Yes. But the risks really lay with you.
If you don’t know how the platform you are using works and you haven’t toyed with a demo account for long enough to understand the intricacies. Learning everything about the platform you choose will mean you are less likely to have issues later down the line.
Not understanding the strategy that your signal/strategy provider is using can have it’s own issues too. So watch and learn for a while, the longer, the better.
So yes, you can trade more efficiently, and increase your profits when you research, test, and then find the right trader to replicate.
Photo by Allie Smith on Unsplash
