Anyone looking to shorten the learning curve to becoming a more experienced trader should consider social trading.
Efficient Trading Strategies You Need to Try Right Now
The access to information and the ability to see what other traders are doing, interact with them, watch their trades and possibly copy their techniques are great ways to learn what's working and what isn't.
There are two main types of social trading; the copy trade which sees you placing the exact trade as someone else, or the mirror trade, where a trader automatically does the same trade as another chosen trader, all in real time.
By joining a social trading platform you can get connected with traders across the globe and easily share and receive information. One of the first platforms was eToro in 2007, followed by other platforms like DupliTrade and ZuluTrade.
The benefits are obvious, you can learn from other more experienced investors and learn from them, and the social trading platforms are fun and easy to use.
There are risks however, as copying someone else's trade does not mean you won't lose. And finding a trader that fits your needs isn't always easy.
If you have taken the plunge, here are some strategies to implement right away.
Engage with Others
Don't be shy! Connect with others, comment, like and follow other traders, ask good questions, glean insights from experienced traders. It's called social trading for a reason. And once you've picked up some knowledge make sure to pass it on.
Learn From the Best
Trading can be overwhelming when you first start out. But that's the beauty of social trading, you can watch and see what other traders are doing, and as you get into it you become more confident in yourself as well. Look for top traders in every market, from every corner of the globe. Don't discount anyone, you could find a top trader from any country in the world, so keep your eyes open, and an open mind.
Find a Trader That Suits You
At the same time, just because a trader is highly ranked, they may not be a good fit for you. Sometimes the highest ranked traders have a lot more capital than you, and are able to take on a lot more risk. And even if they have been very successful in the past, it doesn't mean they won't take a hit in the future. But striking when the iron is hot is still key. You want to copy a trader at the beginning of an upswing. Don't just look at a trader's past performance but at their current situation.
Find Multiple Traders
It could be simple to just find one trader that clicks with your style. However, there's nothing wrong with collecting a number of traders to help diversify your risk. When one trader you follow has hit a rough patch, maybe there are two others that are doing well. Together they will create a more stable foundation for your trading.
Know When to Call It
Rule of thumb, some traders say it's best not to let your copied trader reach 30 percent loss on the overall amount invested. Sometimes you just have to know when to call it and try another strategy or technique and cut your losses. This can especially be hard if you've sunk a lot into a particular investment. As the psychologists would say, you may fall for the sunk cost fallacy.
Don't Go On Autopilot, Not Totally
It may seem like copy trading is an easy way to check out mentally, but there's so much potential information out there online, why wouldn't you keep up-to-date on the market trends? Social trading is a great way to get your feet wet but you won't grow and learn as a trader unless you are also investing your time and mental energy as well.
In life, relationships and everything, it's important to make your expectations clear, especially to yourself. In social trading, be realistic with yourself. Others have tried to see their social trading as a high yielding savings account, not necessarily your ticket to "win it all". If you keep your expectations in check, you'll be less likely to take too large of a risk, and also just have more fun. Celebrate your wins no matter how small!
Like your expectations, don't let your emotions run away from you. Create an investment plan and don't get sidetracked or riled up into making a big trade with more risk than you can afford. Don't get spooked either if you see a drawdown at times, those can also be expected. With all the information at your fingertips it may also be tempting to be constantly evaluating your performance every few hours. This is a recipe for disappointment and frustration. Instead, evaluate your performance over a few months or more, look for the larger trends and don't get bogged down by every little bump along the way.
Watch Your Account Closely
In the same breath, don't forget to keep a close eye on your account. You don't want to be surprised!
Be On Guard For Superficial Numbers
Caution is always needed. It's easy to be drawn to a trader with an impressive number of followers, but do your research. The high numbers may be linked to a high-risk strategy. If something seems too good to be true, it often is.
Like all trading, social trading carries risk. While social trading bears a certain safety-in-numbers feeling, it's still possible to experience a large drawdown or make a bad call because you've become overconfident. Instead, success, like in any field, often comes down to doing your homework. Do the research, stay up-to-date on market conditions and outlook, and only put up capital you can afford to lose.
In the end, if you keep your wits about you, and aren’t afraid to get connected and do your research, and keep these strategies in mind, social trading may be the perfect puzzle piece to slot into your life.