Copy Forex Trading
If you are tired of looking for the perfect strategy, and emotions bother you - you exit winning trades too early, and do not limit losses on losing ones, then perhaps you should consider copy trading
Having become extremely popular in the Forex market, copy trading is a way of emulating the methods and approaches of successful traders. While this sounds simple enough and profitable, there are a few things to consider before you start betting real money on a mirror trading strategy.
Trade Copy Method
Copying a trade is a method selected by a trader from a list of trading strategies that he would like to apply to his trading account. After that, the program/method for this strategy is placed/executed on the trader's account, thus trading is carried out strictly according to the chosen strategy.
The trader can potentially choose some parameters for the strategy being executed, but the ultimate goal of mirror trading is to remove emotion from the trading system and entrust the potential profit (or loss) to a method that is objective. In particular, many novice traders often buy highs and sell lows - this can be avoided by using some simple strategies.
Of course, a trader may have some anxiety about this approach - and trading programs and auto-trading can lead to misunderstandings of the market and the methods used. Yet copying trades is much more transparent than the traditional trading robots that retail traders are often intimidated with.
Advantages
Copy trading is much more transparent than other automated trading methods. Here are some of the benefits:
A trader chooses from hundreds of potentially available exactly the strategy that best suits his financial goals, ambitions and capabilities.
The real results of the strategy can be seen even before it is applied. Those who sell automated trading robots will rarely update the data on the performance of their programs. Mirror trading strategies usually show updated results daily so that the trader knows how the strategy worked before using it.
A trader can consider such additional criteria as the traded currency pairs, how many trades were made (a very important parameter, because it is desirable to see the results based on many trades, not two or three), the percentage of winning and losing trades, the trading period of the program, the average profit and the average loss on trades. One of the most important statistical parameters is the maximum drawdown.
This is the largest loss a trader would face when using the program. This indicator should be weighted relative to the average wins and losses, as well as the capital available to the trader. Traders should avoid systems where the maximum recession could wipe out their trading account, no matter how good the other statistics look.
Emotions can be removed from trading. The trader is not worried about when to enter and exit the market.
Usually (it depends on the broker and the trading platform), trades are executed regardless of whether your computer is turned off or on. Therefore, the trader must be comfortable with the chosen strategy.
The trader can continue to enter trades manually in addition to the automated trading that is carried out by the program.
When considering the benefits, the trader must understand in detail what each strategy has to offer. This can only really be determined if there is a long history and a large number of trades that have been entered into in accordance with the strategy.
Results should also be obtained on a real account, not a demo account. And a series of losing trades mustn't destroy your trading account, or even lead to the loss of most of the account.
Disadvantages
It looks like a beautiful dream to have a program that makes money while you sleep. But there are some disadvantages that a trader needs to be aware of:
The results not reflected in the report were obtained in real trading. Therefore, the trader should carefully analyse how the results were achieved and whether all the trades for which the trading signals were received were reflected in the presented results.
Markets are constantly changing. If a currency pair has been in a range for a long period of time and begins to trend, then the results may not reflect how the strategy will perform in the trending market. In particular, for a range strategy, it is recommended to choose pairs that do not include the US dollar.
The results are usually calculated based on a model account. The trader must understand that if he trades with a much smaller amount of funds, then his account can be destroyed.
Some will use this as a limit on the amount of risk. However, a few losing trades in a row can wipe out a small account, resulting in only a small drop in assets on a large account.
The strategy continues to run until you stop it. This means that the trader must be vigilant in monitoring his account and the strategy's performance.
Closed positions do not reflect the trader's full risk. For example, the maximum recorded loss may be 100 pips, however, for some transactions, current losses could reach, 200 or 300 pips. It is very important to take into account how much the strategy allows the position to go into the negative zone.
The final results shown by the strategy are often inaccurate for real trading. You must go through the entire trading history to see which trades were made "live". Profit figures often include hypothetical profits accumulated during initial testing or the initial phase of a program launch.
Applying a Copy Trading Strategy
Not all brokers offer mirror trading, so a trader must first find a reliable broker that provides a similar service and opens appropriate accounts that support and function with mirror trading programs.
There are also third parties that work with many brokers to place automated trades on traders' accounts. Thanks to this, the trader can use their current trading accounts without having to open their new account.
After financing the account, or using a demo account, the trader gets access to this service. The trader then looks at the available mirror trading programs, evaluates the results and then selects the strategies that he wants to use in his trading account.
The trader will need to authorize the broker (or third party) to place trades on the chosen strategy in his account. The confirmation is that the trading signals will be activated on the account.
Then the trader must determine how much volume he wants to trade on each trading signal, as well as how many open lots he can have at any given time (to manage risk). After that, the trader can observe if the strategy works according to the statistics. Otherwise, the strategy can be removed from the account at any time.
Conclusion
The decision to use a copy trading strategy must be approached very carefully. After all, it's about real money. Take a close look at all the statistics and make sure they match your risk tolerance and available capital.
Setting up copying a trading strategy and corresponding trading account is a relatively straightforward process and usually takes no more than a week. It should be borne in mind that markets are constantly changing and past performance does not always guarantee future results. There is risk in every trade you make, but if you can assess the risk, you can control it.