How to Choose the Best Traders in Copy Trading

Selecting competent traders to replicate is no easy feat. Despite the availability of adept traders across various social trading community types and platforms, it requires a certain level of proficiency and effort to identify them. Unfortunately, many of them are novice traders with inadequate financial management abilities and a propensity for high-risk trading strategies.

In this piece, you will gain the necessary knowledge to conduct a thorough evaluation when searching for the optimal signal provider to follow on popular copy trading platforms.

Take a Look at the Returns

Without a doubt negative returns are undesirable, but it’s equally crucial to be wary of excessively high returns. Returns exceeding 70 percent per annum are not typical and likely to be attributable to good fortune or a willingness to undertake high-risk trading. It’s also essential to analyze monthly returns to ascertain whether the performance is sustainable or dependent on certain months.

When selecting traders to copy, examining their profit charts is crucial. You want to collaborate with traders who have a consistent track record of steadily increasing profits. Irregular charts may suggest the trader is engaging in gambling, leading to alternating periods of high profits and colossal losses.

A Hundred Percent Record may be a Red Flag

Traders boasting a 100% or incredibly high winning ratio should raise red flags. Such ratios may be achieved by merely keeping a losing trade open, significantly affecting your performance. For example, a forex trader may initiate a trade with a 100 pips stop level and increase it to one thousand, enabling them to keep the trade open. This action reduces the amount available to open new trades, potentially harming your overall performance.

Check the Trader’s Track Record

One of the simplest methods of identifying an excellent social trader is to investigate the level of trust other followers have in them. To achieve this, you can examine the amount of real money that others have invested in the trader to get signals. Additionally, it’s vital to consider the profits these followers have made by replicating the signal provider’s trades, which you can find on their profile page.

However, it’s worth noting that having few copiers and followers is a red flag, and you should steer clear of such traders. Being the most copied trader doesn’t necessarily imply that they’re a good trader. Some traders manipulate their rankings through questionable tactics such as manually replicating the activities of successful traders or creating multiple accounts and sticking with the one that performs best by chance

Don’t Forget the Risk Score

Whether you are using a demo or live account, there are technicalities associated with copy trading that you should be aware of. One such technicality is the risk score, which most social trading platforms calculate on a scale of 0 to 10. When selecting traders to follow, you should look for those with consistent scores that don’t fluctuate much over time. It’s also crucial to opt for a low-risk score while still obtaining the desired results.

In trading and investing, there is generally an inverse relationship between risk and expected returns. Nevertheless, it would be best top opt for a risk level between 0 to 5, depending on how conservative you want to be.

Activity Level Makes a Big Difference

It’s crucial to consider how active your chosen trading signals provider is. Ideally, you should opt for traders who have traded actively in the past five weeks, depending on their trading style, whether long-term or short-term.

Traders can be categorized into different types based on their horizon, such as long-term traders with a monthly or yearly horizon, swing traders with a day/week horizon, day traders with an hour/daily horizon, or scalpers with minutes, seconds, or even less horizon. When considering small-time horizons, it’s essential to be aware that slippage can consume a significant portion of your profits if the pip size of gains is small, causing your returns to be lower than those of your signal provider.

Final Thoughts

With these things in mind, you can make sure you pick the right traders. These traders should not only help you make money on trades but also provide you with the much needed training and learning that will help you become a great trader.