Forex trading is on its rise, with thousands of new traders joining brokerage platforms every day. But irrespective of the professional level, every trader needs to follow specific trading patterns.
The ability to apply effective strategies allows you to reduce the number of unprofitable trades. Such an algorithm will help you successfully navigate the financial markets and improve your trading performance. But how to choose the right strategy for a beginner who has only theoretical knowledge and no experience?
One of the options is to see what experts do and try to repeat their actions. It is not just advice, but one of the well-known trading strategies – mirror trading.
Copy or Mirror Trading Strategy
Copy-trading appeared in the early 2000s and has become very popular today. It is a way of Forex trading where professionals allow novice investors to mirror all their trades. This strategy is an ideal solution for those market participants who want to invest money profitably but do not have enough time or experience to do it independently.
There are two main types of mirror trading:
- Manual trading is when a trader follows professional players’ trades and copies their trades, but all transactions are performed manually. In this case, the trader buys and sells all trading instruments himself.
- Automatic trading presupposes the use of special software to repeat the actions of professionals instantly. It is important to note that in automated mirror trading, trades are made every time a leading trader opens or closes a market position.
Benefits of Copy Trading
This strategy has many positive aspects:
- You do not need to be a very experienced trader to use mirror trading. It does not require heavy investments either.
- This type of trading does not take much time. It does not force you to focus barely on the trades non-stop. You can communicate with the trader whose deals you are copying or continue studying the market’s basics.
- Mirror strategy allows the trader more control over the transactions. It is possible to introduce a risk management algorithm to stop the program after a couple of unsuccessful trades.
- With a copy trading program, you can work in a few markets at the same time. It will considerably diversify risks.
Shortcomings of Copy Trading
No matter how easy and ideal this method may seem, it also has its minuses:
- Even if you follow the most skillful trader, there is no guarantee all his transactions will be 100% successful. The daily turnover for an advanced trader is relatively high, allowing him to have some unprofitable trades without harming his deposit. And these losses may be substantial for a beginner.
- It is advisable not to limit your trading activity with this strategy only. If you are going to trade on your own one day, you will have to master all trading secrets. Copying the trades of the other helps understand the market intricacies but will not substitute your personal experience. When you are opening positions themselves, you will not avoid market analysis.
- If you install cope trading software, it must work all the time the brokerage platform is open. Some trading platforms work 24/5. And the program should work all this time.
How to Choose a Trader to Copy?
Do not follow a random trader; take into account several factors for your selection:
- Do not trust traders with an experience of less than a year.
- Usually, professionals state what minimum investment you should make to copy them. Choose only affordable variants.
- Stable performance. At least 60% of all trades should be profitable.
- The higher the percentage, the more aggressive tactics the trader adheres to, which means the higher the risks.
- Check how many followers a trader had.
Copy trading is a great chance to become a full-fledged participant of the Forex market without time-taking training. Besides, it does not force the trader to spend hours analyzing the market and choosing the best moment for opening a position.
Moreover, this strategy allows traders to look at the financial need from the inside and learn the best algorithms. It is an opportunity to discover and borrow a lot of practical techniques. And constant interaction with the professionals will bring the necessary skills and contribute to your experience.