Copytrading, advertised by the platforms as a way to earn money while lying flat (ie without putting in the effort). Yet everyone knows that money does not fall down from the sky, or there will be no poor man on Earth. If copytrading works so well, everyone would turn to it.
There is definitely money to be earned, but only if you know how to manage your risk and make the correct decisions. In the first article we talked about the differences of the 2 copytrading platforms I used. Today we will talk about what copiers should take note of when engaging in copytrading activities. Just because we copy exactly what the master trader do, does not mean we will achieve the same results as a copier. The game of chess is a very good example to demonstrate this point.
The Master Trader’s Consistency And Trading Period
Even a donkey can have a 50% chance of making a winning trade in the very short term, simply by luck. But only a skilled trader could achieve the same results consistently over a long period. This is the same for all trades across all fields. You would not want a surgeon who has a 50% success rate in his operations. A skilled trader may not have a 100% success rate, but as long as his wins are consistently higher than his losses and generate a good result over a long period of time, then it is a good sign. How long is considered reasonable will depend on the individual’s preferences and risk appetite.
Do also take note that as mentioned in the first article, traders in OctaFX often manipulate their statistics to give them a headstart in the ranking table. So do not simply look at how much profits they earned compared to others, but the length of time they could produce the consistent results.
The Master Trader’s Open Trades
Supposed a master trader puts in 5000 USD and earns 2000 USD, but has a paper loss of 3000 USD, then it should serve as a warning sign. Most master traders do not put a stop loss on their trades, because it will impact their overall statistics, which copiers value highly when choosing a master trader. A copier will naturally choose a master trader with 95% win rate rather than one with 70% win rate, even though both are generating profits.
Usually master traders scalp and close with small wins, but would often rather let their paper losses balloon until it is too big or they get liquidated. They would choose to hold it and incur swap fees, waiting for the time their trade breakeven again at a small profit. The open trades therefore trap your available funds and at times when the master trader lost control in an unstable market, one will have to keep injecting in funds to maintain the trade. Their strategies often entails a take profit but not a stop-loss concept, using a bigger risk for smaller profits.
Of course, if you are already copying the trade, you could manually close it yourself with a stop loss too. That really depends on your own strategy.
The Master Trader’s Communication With Copiers
One factor you may wish to consider is the master trader’s communication with the copiers. In NAGA, the platform provides a Facebook like feed where they can post their trades and have discussions with the copiers. In OctaFX, the master traders generally use Telegram as the platform itself have limited functions. Copiers are like the master trader’s customers, and it is important that the master trader communicate regularly with the copiers to assure the copiers that they know what they are doing, or to communicate their plans with the copiers. If you are someone who would like constant communication and updates from the master trader, then you can add this factor into your consideration list.
The Passive Party
Naturally, the copier is the passive party. What the master trader do, the copier do. If they open 1 trade at 0.01 lot, you do the same. If all of a sudden they open 50 trades at 0.1 lot each, you do the same. Master traders are also humans, they also make wrong decisions at times. Even if they close their trades in the profit, often they do not open it at a desirable position and may sustain prolonged periods of paper loss, which may cause some to be liquidated. Or even, after a period of success, the master trader became complacent and thought he was a professional, only to give in to emotions and started being aggressive, which was not what you wanted when you started copying him. I had multiple experiences with such master traders. They went all good for half a year, only to suddenly go crazy and open multiple positions which makes no sense and have half a year of profits wiped off in one night.
While we cannot control what the master trader would do, we can take steps to mitigate some of the risk. For example, one could ensure there is ample buffer money in the pool. Naturally we started off with a healthy buffer of money, but as our pool size gets bigger, we should also more than proportionately increase our buffer money. For example, I put 5000 Euros to copy master trader A in NAGA at a 20% copy rate. When I make profits and the pool size increased to 10000 Euros, instead of copying at 40%, I will only copy at 30%. As your pool size gets bigger, one should gradually prioritise safety so that the past effort and time do not go to waste.
Alternatively, one can remain at the same copy rate but withdraw profits every week or every month. Afterall, money in your pocket is the only concrete thing you can trust on. You perhaps know that the master trader one day will mess up, and you choose to let the little pool you have get liquidated and wait for him to calm down before taking out a portion of your past profits to restart the cycle again. Some choose this strategy too.
The Master Trader’s Style
There are many master traders who open and close multiple trades a day (eg 10, 20 or even 30 trades), but those who do this often have some open trades incurring overnight swap fees over a period of time. The open trades naturally also mean paper losses. One of the copiers I am following and testing out opens many trades a day. He closes many of them in the profit but has just as much in paper losses, making everything back to square 1.
On the other extreme, there are master traders who open only 1 or 2 sets of trades per week, or sometimes none in 2 weeks, opting to select their trades carefully and going in only when they are confident. Many copiers prefer the first type of master trader as people often feel that time is money and for every day without a trade, it is money not earned. While the second type of trader seems to be slow, it is perhaps more consistent and less risky. At the end of the day, the second type of trader may even earn more than the first, who has a massive paper loss waiting to be closed.
When choosing a master trader, there are many factors one has to consider when choosing the right one for you. For some, he would rather go big or go home. For some, they just want to earn coffee money, few hundred dollars per month to pay off the utility bills. Everyone takes out their hard-earned money hoping to achieve something more. But whatever it is, even as a copier, remain calm and make the right logical decision.
In the third part of the series, I will be talking about the psychological part of being a copier and what one may face during the copytrading process. This last step, while not technical, is also a very important aspect. Because one wrong step done in the heat of the moment can wipe out all your past profits.
Referral Links (I am not promoting for them. But if you want to try it, consider using the referral links below):
NAGA referral link: https://naga-global.com/register?refcode=ezxqyo
OctaFX referral link: https://octafx.page.link/7qv8