Table of Contents
- But how does Copy Trading work?
- Tip 1: Review historical performance closely
- Tip 2: Favour traders who manage risk well
- Tip 3: Lean toward experienced veterans
- Tip 4: Seek skin in the game
- Tip 5: Connect on Telegram
Copy Trading is an innovative way for new traders to leverage the skills and knowledge of more experienced, successful traders. By copying their trading strategies, you can essentially "piggyback" off their expertise to potentially profit in the markets, without having to do all the heavy lifting yourself.
In this article, we'll explain what Copy Trading is and how it works, specifically on the PrimeXBT platform. We'll then provide 5 comprehensive tips to help you select the best traders to follow, so you can optimise your Copy Trading success. Let's get started!
But how does Copy Trading work?
In a nutshell, Copy Trading platforms like PrimeXBT's Covesting module allow you to automatically duplicate the trades of veteran traders you select. The traders' buy and sell signals are mirrored on your account in real-time.
You can browse through hundreds of trading strategies with fully transparent track records of performance. Analyse their historical returns, risk metrics, drawdowns and more. Carefully choose traders that fit your objectives.
Once you decide who to follow, you simply allocate a portion of your capital towards copying their strategy. Their trades will then be replicated in your account. You sit back as the experts work their magic.
The Copy Trading platform handles all the complicated work of syncing trades seamlessly in the background. You get to potentially profit off the skills of pros almost effortlessly.
Now let's get into the 5 essential tips for selecting the best copy traders to follow on PrimeXBT:
Tip 1: Review historical performance closely
A trader's past performance offers critical insight into their potential future returns. When reviewing traders, carefully sort by monthly and overall profitability using Covesting's built-in leaderboard.
Seek out traders with steady, consistent gains over long periods, not just short-term wins and hype. Consistency indicates genuine skill, not just luck. The longer the proven track record of positive returns, the better.
Specifically, look at key metrics like win rate, total profits, and more. Understand how prudently or aggressively they trade. Conservative, consistent traders will fare better long-term than those using hyper-risky strategies.
Tip 2: Favour traders who manage risk well
When selecting copy traders, meticulously analyse how prudently they manage risk based on key metrics and behaviours. Pay close attention to the maximum margin usage of each trader's strategy.
Traders using only 10-20% of available margin display caution and restraint, versus traders aggressively utilising 80-100% of margin, putting their entire account balance at risk. Lower margin usage leaves adequate room for inevitable drawdowns to occur without substantially increasing chances of full liquidation.
Additionally, favour traders holding more diversified strategies and assets, reducing exposure to one volatile asset blowing up the entire account. All traders endure losses, but the prudent ones manage risk to endure and persist through tough times.
Tip 3: Lean toward experienced veterans
When selecting copy traders, favour those who have been actively trading on the platform for extensive periods of time. Their longevity provides a much more meaningful and reliable performance history to judge from, compared to new traders with limited data.
These traders have already proven themselves consistently profitable over the long-term, while many newbies may just get lucky short-term, before their inexperience leads to blow ups. The veterans' extensive experience trading through ups and downs builds more trust that they can steadily navigate markets going forward. The knowledge and skills they have accumulated allows them to adjust strategies for evolving conditions.
Traders active on the platform for years have likely seen it all before and know how to respond. Their expertise makes them more adept at risk management as well, when volatility strikes. Don't risk your capital on the luck of newcomers - go with proven veterans with long track records of surviving and thriving across market cycles.
Tip 4: Seek skin in the game
When evaluating copy traders, strongly favour those who invest sizable personal capital alongside their follower's capital into their own strategies. This ensures substantial "skin in the game" that helps further align incentives so traders prudently preserve both their own capital as well as their followers'.
Followers' allocated capital shouldn't vastly outweigh the personal equity the trader has committed themselves to their own strategy. If a trader has significantly invested into their own strategy alongside you, they will be highly motivated to work hard driving returns, while also managing risk appropriately to protect the capital they have at stake.
Some dishonest traders may take on lots of follower capital without investing much of their own, turning followers into free leverage for risky over-trading. Heavily favour traders with meaningful skin in the game, which displays confidence in their own strategy and incentives to manage risk for themselves and followers alike. Seek maximum skin in the game for peace of mind.
Tip 5: Connect on Telegram
PrimeXBT's Covesting Telegram channel provides an invaluable opportunity to engage directly with top-ranked traders found on the leaderboard. Here you can message traders to assess their personality, knowledge, communication style, and transparency before following them.
The social element helps vet them beyond just statistics. You can ask questions to judge their temperament and grasp of trading fundamentals. The conversations create openness, allowing you to build rapport and gain trust in the trader behind the stats. Some may reveal helpful context around their risk management tactics, strategy evolution or market perspectives you won't glean from performance metrics alone.
Following real traders you've actually conversed and developed a relationship with can inspire extra confidence in their human competence, not just algorithms. The social engagement allows you to feel out their trustworthiness before sharing your capital with them. So tap into the social perimeter of Covesting via Telegram to vet potential traders.
In summary, Copy Trading allows you to leverage the skills of top performers on Covesting's leaderboard. By selecting experienced, prudent traders aligned with your goals, and diversifying across several, Copy Trading provides a hands-off approach to steadily compound returns over time. Use these tips to optimise your trader selection and profit through the wisdom of experts.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.