Participating in the stock market has been quite a hit even before the internet became easily accessible to everyone in the late 2000s, but it only kept growing as the information age manifested. Today, as brokers lend people their trading licenses through trading platforms, people are getting more access to the stock market and looking for copy trade strategies.
As the trading platforms grew, new trading mechanisms have been introduced into the market. Copy-trading, a form of automated trading that copies another investor’s market position in a certain platform, is one of the most popular trading mechanisms today.
Copy-trading involves copying trade links of one investor for another investor’s use. A copy trade mechanism would take the investment pattern of one trader for a minimum amount to use on another trader’s platform. This is usually preferred by working people with less time in their hands to actively manage their portfolios.
They can copy the trading patterns of successful traders in one platform, giving them access to higher earnings without having to spend more time observing the market.
However, it should be noted that this type of trading mechanism also comes with risks. Since copy trading involves automated trading, copying trade patterns from the wrong people may end up incurring losses instead of steady earnings.
There are less competent traders on every platform, which is why you should be careful in choosing your target to be copied. Here are some effective and efficient copy trading strategies which may help in increasing your passive income.
Copy Trading Strategies that work in 2021
- Prioritize consistency over sheer income amount. People may usually be drawn to accounts with bigger income in terms of sheer numbers. This is because earning big is the ultimate goal for traders. However, this type of earning may or may not be steady, and would still depend on the level of capitalization, amount of daily activity, and the risk profile of one’s investment portfolio. Evaluating traders based on their long-term performance may help mitigate the risks of choosing the wrong trader to copy. This is because consistent players tend to be the ones which lose less money and earn more in the long run. Those who strike large wins at random times may not always hit profitable trades, and would eventually lose money. Consistency is a key factor in copy trading since the trading mechanism would be based on trading patterns. Observing an investor’s trading patterns on a longer time frame like a year or a quarter may help in making sure that they would perform equally well during long investment periods.
- Learn basic trading tools. Basic finance and economics would be enough in grasping how the market behaves in general. Knowing finance tools like the price-earnings ratio, beta risk function, and liquidity ratios would help in determining firsthand which investments would be worth the money. This would help in quickly evaluating the trading patterns of certain individuals where copy trading mechanisms would be applied. If you know how to evaluate basic investments and find profitable stocks quickly, you can find traders with good patterns more effectively.
- Whenever possible, check the trader’s background. It never hurts to know the person. Knowing about where they came from, their educational background, and a little bit about their trading experience would help in judging whether they have the proper qualities of a good trader. If they have a short trading list on the platform, this would serve as a good reference that would open you up to non-quantitative earning potential.
- Manage other parts of the portfolio manually. Apart from using another person’s expertise, convenience and time-saving is the selling point of copy trading. While it is useful for people with less time in their hands, you could still manage your investments in your free time. A separate portfolio personally managed by you could help in catching the risk of losses in the copy trading portfolio. This would help you gain insight into trading and would help hedge losses in case the market takes a bad turn.
- Going mainstream doesn’t hurt. Some platforms can give basic trading patterns engaged in by popular business giants like Warren Buffet. Getting popular patterns on the platform (it doesn’t have to be from famous people) would make it more likely for you to earn big. Some people dislike going with the flow and would prefer making their own strategies to ascertain their success. As someone interested in copy trading, there is a big chance that you neither have the time nor the extended capacity to do this. Going for statistically sound choices increases the chances of choosing the right trading pattern.
- Use proper trading applications. Copy trading is a form of automatic trading that copies from other traders. As an automated process, most of your success would depend on the application you use as a copy trader. If the application delays, you may lose money when the stock price rises before you buy it, or vice versa. The Metatrader 4 copy trading feature allows users to gain access to a database of patterns from competent users with timely and accessible features. This is included in the All Markets Trading Gold plan. It has the basic features of a copy trading mechanism and more. What makes this different from other trading platforms is that the MetaTrader 4 copy trading is a part of a software plan, not just a brokerage website. You can copy the trading patterns and customize them for an automated trading algorithm. What usually takes financial experts years to develop can be accomplished in minutes without having to study years in college. Having the right trading application is like having the best sword for a fight. It enables anyone to fight it out in the stock market.
Copy trading is one of the most revolutionized trading mechanisms there is. While simple and relatively easy, it comes with its own risks and difficulties.
People who do not have the time to manage their investments would benefit greatly from this, but they may have to accept that they would give up a certain degree of control in how their investments are managed. Choosing the right market position and the right traders to copy makes up for all the risks involved with copy trading.