Blindly Copy Trading Will Blow Your Account

With copy trade services such as Zulu Trade and Etoro, its become very easy to find a “good” trader, load up an account with £1,000 and set yourself up to automatically copy their trades.  You don’t need to know anything about trading, technical analysis or fundamentals, you can just click a button and follow the leader.  It’s a great idea on the face of it, make money with no effort, other than researching who the best traders are to copy.  You can go and work your 10 hour day, to come home and find extra money in your account, for nothing.

The only thing is, "money for nothing" is not reality in this world.  Consistently profitable traders spend years learning their craft, like any professional.  They understand the mechanics of trading, the discipline and control of emotion that’s required. A professional trader has a master plan, a plan on how to manage risk, a plan on how to handle losses, a plan on how to manage leverage, which is suited to their personality and account size.

Copy trading can work well but every trader has losing trades and losing streaks.  You need to be able to be sure you can handle those losses yourself.  Is your account size big enough to handle the drawdown? Are you able to hold your nerve for the long haul? Are your expectations realistic, looking for maybe 5% per month rather than 30%?

My advice is to educate yourself to at least a small degree before, rather than just blindly following. If you understand the type of trader that your following, you can understand how they trade. If they are a technical analyst you’ll know they are just looking at charts, a fundamental trader will be glued to the news. Knowing how wide their stops are so you know what sort of losses you could expect is a good idea and having an idea of their target and timeframe. Once you understand this you can study the trading statistics and see if they are suited for your personality and risk profile.

I have a group on Pelican Trading, where members can copy my trades if they choose to. I have my winners and my losers, but I post a report for each trade that I place so members can read through the report first and decide if they agree with my analysis.  Once they have read it, they can press the button or not. I try and educate as to why I’m taking the trade I’m taking.

I’ve found that if the trade doesn’t work, those who followed are able to look back at the analysis understand why the trade was placed and maybe even look at why it failed. In my group we can even have a discussion on the trade and why it may or may not have worked. If you are just blindly following with no idea, the losing trades and streaks will be frustrating and upsetting. If you don’t manage your account size properly, you’ll just blow your account and feel like it’s the traders fault when in reality, it’s your own for not spending a little time studying. Blaming someone else is all very well but it’s your account that will take the hit and suffer the loss.

Copy trading has many advantages, one thing I like is the transparency it brings. So many traders and analysts will show their winners and winning streaks but never their losses.  As a new trader when you’re learning, this can be very disheartening as it would appear everyone around you is making lots of money and you’re the only one who’s not.  This is never the case, even the best day traders in the world will lose.  What makes them the best is in the long term they manage those losses and stick to their plan.

In the interest of transparency, I post my technical analysis reports and trading results, whether winning or losing on my Twitter page. I also post beginning of the week and mid week video analysis on YouTube channel here. I’m actually having the last several years of my trading statements verified by a third party, which when completed, I’ll also post to twitter and YouTube.  It’s very important to be open and honest about trading, especially when people are trusting their money to your control. Follow me on Twitter and YouTube as well as anyone else you may be considering copy trading.  See what they post, you’ll be able to read their personality, see the content they publish and whether this may suit you.

My suggestion is if you are going to copy me (or anyone else), spend some time in my group on Pelican, get to know me, my trades and my technical analysis reports. If you’re going to trust your money to my decisions, it’s the least you can do for yourself.  You wouldn’t hand someone £1000 on the street and let them trade your money because you “thought” they were good. 

Do your research and spend some time educating yourself, which in turn will help you manage your expectations.  Then you’ll have a chance at making some passive income with a lot less stress.