Copy Trading Strategies: How to Start Successful Copy Trading

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By PrimeXBT

Reviewed by Dirk Hartig

November 7, 2022
Reading Time: 7 min
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Copy trading strategies can vary and be wildly different in their outcome. A copy-trading strategy follows another trader, hoping to benefit from their expertise. However, there are a few things that you need to know before simply following someone blindly.

The Keys to a Successful Copy Trade Strategy

To be a successful copy trader, you need to understand quite a bit of nuance and things to ensure that it is the profitable venture you are hoping for. Not all situations call for copy trading, but quite frankly, some desperately need it to succeed. Each case will be different, but many have found this approach valuable.

Knowing when to enter a copy relationship

Knowing when to enter a copy trading relationship comes down to finding whether or not it will be fruitful. For example, just because a copy trading strategy is profitable does not necessarily mean it’s right for you. You may find that you can easily outperform some strategies, so it may or may not be worth the fees.

Remember that the situation will differ for each person, but if you need more time to do trading, a copy trading strategy might be right for you. After all, you would like to get the benefits of trading but do not have the time. This is a common situation, especially for those who have full-time jobs.

Other people are not good traders. This does not mean that they have to give up the idea of earning in the crypto market; it’s just that they may be better off letting someone with a bit of expertise take over, allowing them to focus their energy elsewhere and paying the experienced trader to be part of their copy trading strategy.

Another group that may benefit significantly from a copy trading strategy agreement is those who are new at trading but still wish to take advantage of opportunities out there for market participants. This is quite common; as traders become more comfortable and skillful in trading markets, they will rely less and less on a copy trading strategy, eventually falling away from it.

Choosing the right trader to copy

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Some traders available to copy on the PrimeXBT platform backend.

There is no specific “checklist” that you can use to choose a trader to follow, but there are a few things you may want to keep in the back of your head before putting any money to work. After all, even if a trader has been somewhat successful in the past, the reality is that it does not necessarily mean that it will work out in the longer term.

Pay close attention to how long the strategy has been running. If it only has a short amount of time behind it, then the results may not indicate what you can honestly expect. After all, market conditions change over time; therefore, the longer the strategy has been implemented, the more likely it is that the strategy will suffer from different market conditions.

Returns are great but keep them realistic. A trader who is up several hundred percent in just a few weeks may seem like a “slam dunk,” but” the reality is that these strategies almost always go bust. This is because, statistically speaking, it’s common for a strategy to have several losses in a row. More likely than not, a plan to have massive gains is using huge positions or scalping the market with huge stop losses.

Pay attention to fees. Different traders will ask for different amounts, so you should shop for the best value. It’s not to say that a trader with a higher fee is automatically somebody you should not use; it’s just that you need to understand that a costly copy trading strategy needs to perform much better than one that is economical.

Furthermore, understand whether or not you can stomach the type of drawdown you may have with the system. For example, if a system is up 200% over the last several months but can lose as much as 20% in a single day, you need to consider whether you can stomach that type of volatility. As a general rule, the old expression “slow and steady wins the race” applies here, just as in traditional trading.

Diversifying

Diversifying is just as important to someone using a trading copy service as someone trying to build a profitable portfolio. This can be done by assigning specific percentages to various strategies, hoping to have multiple influences on the outcomes of the trades.

Think of it this way: each strategy could be like a company in a stock portfolio. Some strategies may be highflyers like Apple or Google, while others may be more stable like Coke or a bond fund. They are all there to make money, but they may make more depending on the market circumstances. The idea is that if one strategy is struggling, one of the others should make up for it.

Copy Trading Strategies

You should be aware that there are multiple types of trading strategies out there. Still, for someone investing in a copy trading strategy, which is essentially what copy trading is, the bottom line will always come down to risk.

The results of strategies vary widely, and you should have a few things in the back of your mind when choosing one to follow or copy. The strategy can be classified into three categories, no matter how the system works. Again, this will be about the risk you take on.

High-risk strategy with high return potential

A high-risk strategy with high return potential is something that many traders find attractive. However, there are many concerns about trading like this and whether it will be profitable over the longer term. The market will continue to have volatile times, and therefore. In contrast, these strategies can have massive gains in a short time; if the trader being followed needs to have the proper discipline, you could be looking at huge losses the first time the trend changes.

History has plenty of examples of strategies in the past that seemed to work beautifully for several months, if not years. However, the overall attitude of the market changed, and the strategy did not. In these moments, a strategy could fail entirely and therefore wipe out your account if you are unaware.

Conservative strategy

A conservative strategy is a strategy in which the primary concern is safety. This means that the trader will be cautious with the size of trades, the frequency, and perhaps even the situation in which they are willing to trade. These strategies tend to produce smoother returns but will also offer fewer gains over the long run.

Keep in mind that the stability of these strategies will typically cause less stress and are often even more profitable in the long run compared to high-risk trading. You will more than likely see longer-term results with this type of strategy.

Mixed strategy

Some copy traders prefer a mixed strategy because it combines high-risk and conservative trading. The idea is that the principal trader or principal traders will be more aggressive with the better setups and a bit more conservative with the standard setups. The biggest issue with this strategy is that when a high-risk trade goes wrong, it can wipe out gains from several conservative trades, causing the results to backtrack significantly.

How to Start Copy Trading?

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Access copy trading directly from the PrimeXBT platform.

To start copy trading, you must have a broker that offers it. PrimeXBT provides this through its partnership with Covesting, allowing traders to look through a large list of potential trading strategies, opening up the possibility of following one or more experienced traders to grow your account.

The list tells you the total return, the return for the last 24 hours, active days, and followers, and it shows a performance graph. Furthermore, it shows how much equity follows that trader or strategy and gives you an idea of how many people have put serious money to work.

On the copy trading page of the platform, you click follow and then pay a fee based upon trades. The platform allows for peer-to-peer transactions, allowing the two individuals to perform the transaction of paying fees and collecting profit automatically. With PrimeXBT, this process is straightforward and can be done with just a few clicks. You can search and filter the results as another way to look for someone to follow.

Conclusion

Unfortunately, there is no “magic formula” for copy trading. The ideal situation is to enter an agreement with an experienced trader and watch the profit roll in. However, the reality is quite a bit different than that. For that matter, you will have to do some work yourself. The partnership with Covesting makes it easy to do so from the PrimeXBT portal.

Speaking of work, you also need to think about how much volatility you can stand in your portfolio. Only some people are comfortable with massive swings, while others will only be concerned about possible returns. The trader or traders you are dealing with should be a psychological match and profitable. This means that you will have to understand how you react to losses. Remember, even though you are not the person placing the trades, you still need to be able to stick with the plan if you think it will work in the end. Investors into a strategy can often pull their money out at the wrong time, digesting losses, only to find out later that if they stuck with the investment thesis, they would have made a profit.

Also, you will need to understand what a realistic return on your investment is. While a copy trading strategy that made 500% last month sounds like a great idea, the math won’t work out for them over the long run. Traders have strings of losses, and someone who is that levered to the markets typically will have disastrous losses sooner rather than later. While there is no “magic number” that you should have, think about how realistic a return might be. After all, it’s not common to 5x your money every month. The only way to do it is to take on many risks. With this in mind, you should weigh the pros and cons of each strategy and only risk a small amount with it initially. Let the trader/strategy prove itself before risking too much on it. Also, you can diversify using several different ones at the same time. This is similar to the diversification that traditional traders will do in the stock markets, allocating money in various types of assets – in this case, systems – to minimize volatility over the long haul. Remember, wild equity swings can be very damaging to your account, and therefore it will never be as simple as throwing money as a “guru.”

Risk Disclaimer
Investing in or trading gold or other metals can be risky and lead to a complete loss of capital. This guide should not be considered investment advice, and investing in gold CFDs is done at your own risk.
The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities, and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.

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