Trading is a promising avenue for investment. As with any other form of investment, it can be quite risky for your capital. And if any trader promises you anything different, they are lying and are not in good faith.
However, the situation isn’t all bleak. The great thing about knowledge is that it gives you the tools to handle any situation that comes your way. In this case, knowing the risks that are likely to come your way will help you know how to avoid them or mitigate their effect. This way, you’ll be able to copy trades in a much more successful way.
Even more importantly, you have to be aware of the potential mistakes that most new copy traders make. This will help you avoid the common pitfalls that can derail your trading practice. That said, here are mistakes that you should avoid as you start copy trading:
1. Not Supervising your Portfolio
Many new copy traders look at the method as an easy way to get money. That is true, but only to a certain extent. Copy trading isn’t something that you just set up once and forget about it, only to remember it when you want to cash in your profits.
Experienced copy traders know that success only comes with time, effort, and constant vigilance. You have to monitor your trading account constantly to ensure that your signal provider is still making you money. You have to do your research to keep up with the market and identify the trends. And the list goes on and on.
Simply put, you will have to stay aware and active of what’s happening to your portfolio. Not that it should become your full-time job because then it would lose its convenience. But it’s also important to strike a balance. This will help you continuously monitor the progress of your trading account while still identifying and dealing with the challenges that come your way.
2. Lack of Familiarity with the Signal Provider’s Strategy
As you start searching for signal providers to follow, you will undoubtedly run into some that have seemingly spectacular performances. You will be drawn in by the winning percentages, perfect equity line, no drawdown, and steady daily profits.
But it’s important to recognize very early own that such performances are nothing more than smoke and mirrors. The strategies behind these types of trades are a surefire path straight to failure. They are based on sneaky and unscrupulous techniques that will do you more harm than good.
Sure, you will notice some crazy results in the short run. However, these strategies are not sustainable in the long run. Sooner or later (and it is usually sooner), you will be faced with crippling failure that could wipe out your short run in copy trading.
Instead, it is much better to focus on more modest profits. You might think that this is such a drag, that the whole point of getting into copy trading is quick money. But if you have any hope of making a long-term career out of it, patience and moderation are skills that will serve you much better.
3. How Much Capital Should You Assign to Each Signal Provider?
Obviously, you will be working with more than one signal provider. But that brings about a very interesting question: how much capital should you assign to each?
You need to know how to distribute your capital to your different assets (that is, the signal providers). You should have some criteria that will help you do this in such a way that will help you minimize losses, maximize profits, and maintain optimal risk. Otherwise, you run the risk of assigning more capital to more unstable assets and less to the trustworthy ones.
4. Lack of Familiarity with the Social Trading Platform
One of the most common mistakes rookie traders make is diving into copying trades right after joining a particular trading platform. Instead of trying to replicate some signal providers, why don’t you spend some time learning the ropes first?
This will keep you from making some silly mistakes or overlooking a small setting change that could cost you a lot of money in the long run.
The best way to get it right is to join the best social trading platform. For instance, you can become part of the Real Trader Community to get the best community advice, as well as access to successful traders.
Getting the hand of copy trading is not a difficult process. However, you have to make an effort to identify and avoid mistakes that could derail your trading career. This is the only way to ensure long-term success.