Trading within the forex market may be very rewarding, but it usually requires great insight into the trends of the market, technical analysis, and presumed risk management. Novice traders are sometimes bewildered by the complexity of forex trading.
However, over the past few years, a copy trade approach has become increasingly popular. It enables both novice and experienced traders to profit from the skills of successful traders by automatically copying their trades.
Why Copy Trading in Forex?
There are advantages that make copy trading so attractive, especially for beginners. These include the following:
- Active learning: By replicating the strategies of great traders, you learn how to analyze the market, control risks, and make decisions.
- Saves time: If you are one of those busy individuals who cannot sit for hours studying the market, then copy trading is ideal for you. You can still be part of forex without being glued to the chart and news feeds all day.
- Risk management: Most copy trading platforms come with features that provide stop-loss settings, enabling you to determine how much you can afford to risk on each trade. You can also diversify by following several traders and using different strategies.
How to Succeed in Copy Trading
Every approach taken should be strategic for maximum success. Here are some tips for successful copy trading:
- Research the traders you want to copy: Just because a trader has the highest win rate does not mean you should just close your eyes and follow them. Study their past trades; study the risk they take and their approach in general. Does that fit your goals?
- Performance monitoring: At periodic intervals, the performance of the traders you are following needs to be checked, even though the whole process is automated in copy trading. If a certain trader starts to underperform, then it may be time to switch.
- Set realistic expectations: Be prepared that no trader succeeds 100% of the time. Losses are an element of trade. The long-term view will help keep you level and not easily batted about by short-term fluctuations.
A Simple Copy Trading Strategy to Get You Started
As a beginner in copy trading, you’d want to follow only those traders with relatively low-risk strategies. While they might not give you very high overnight returns, they tend to be much more consistent. Here’s a quick list of the factors you’d want to look at in choosing traders to copy:
- Trading history: Look for traders with at least one year of continuous performance.
- Risk score: Most platforms will give you a risk score. Keep this in mind, particularly if you are really risk-averse.
Also, it is important to note that a high win rate is tempting. However, sometimes, it is very important to review a trader’s drawdown and how they manage the loss. As you get comfortable, you could start adding higher-risk traders to your portfolio.