Tips for New Traders Copy trading in cryptocurrencies can be profitable, especially for beginners following experienced traders.
However, it is essential to choose reputable platforms and traders, understand the risks, and trade
Copy trading can be a useful tool for beginners who are new to the financial markets and who may not have the knowledge or experience needed to make successful trades on their own. By copying the trades of successful traders, beginners can learn from their strategies and make profitable trades without having to spend time researching and analyzing the markets themselves.
However, it is important for beginners to choose the right copy trading platform that suits their needs and preferences. Some popular trading platforms include Binance. These platforms provide features such as the ability to search for and follow successful traders, risk management tools, and a community to engage with other traders.
But it is important for beginners to do their own research before choosing a copy trading platform. It is also important for beginners to remember that profits are not guaranteed when copy trading. Therefore, it is necessary to manage risks properly and not invest more than one can afford to lose.
How profitable and safe is cryptocurrency copy trading?
Cryptocurrency copy trading can be profitable and safe, but it depends on the platform you choose and how you use it. Here are some factors to consider:
Copy trading can be profitable if you choose a successful copy trader. This can provide you with access to the knowledge and experience of professional traders, which can lead to better returns than you could achieve on your own.
Copy trading can be safe if you choose a reputable platform that provides security measures to protect your funds and personal information. Look for platforms that have a strong track record of security and are transparent about their security measures.
What is the most profitable trading strategy in cryptocurrencies?
1-Scalping
2-HODL
3-Arbitrage
4-Day trading
5- Event-Driven Trading. Event-based trading
6-Volume Spread Analysis (VSA)
7- Fibonacci Trading
Fibonacci trading
8-Support and Resistance Trading
Trade support and resistance
9-Pattern Trading
Trading patterns
10-News Trading
News trading
11-Mean Reversion
12-Trend Following
13-Gap Trading
14-Reversal Trading
15-Range Trading
16-Breakout Trading
1-Scalping
Scalping
It is a cryptocurrency trading strategy where traders aim to make small profits by executing many trades in a short period. They profit from small price fluctuations and usually hold their positions for a very short time, sometimes just seconds or minutes
2-HODL
HODL
It is a cryptocurrency trading strategy where investors buy and hold their cryptocurrencies for the long term, regardless of short-term market fluctuations. It is based on the belief that the value of cryptocurrencies will increase over time, so investors resist the urge to sell during market downturns. The term “HODL” originated from a misspelling of the word “hold” in a Bitcoin forum post and has since become a popular meme in the cryptocurrency community.
3-Arbitrage
Arbitrage in cryptocurrency trading is similar to bargain hunting. Traders look for price differences for the same cryptocurrency on different platforms. When they find a lower price on one exchange and a higher price on another, they buy on the lower-priced exchange and sell on the higher-priced exchange, making a profit from the price gap. It's like buying something at a lower price in one store and selling it at a higher price in another. Arbitrage relies on fast action and automation because price differences can be small and change quickly. It is a way to exploit market inefficiencies to make a profit. more
4-Day trading
Day trading is a trading style characterized by:
Buying and selling financial instruments, such as day trading stocks, within a single day to profit from slight price fluctuations, also known as day trading
Close all positions before the market closes to avoid holding them overnight and being exposed to potential price gaps or news events that occur outside trading hours. Applies to a variety of financial instruments, including stocks and forex.
It is applied to a variety of financial instruments, including stocks and foreign currencies
While day trading can be profitable, it also presents its share of challenges. Due to its fast-paced nature, day trading requires a significant amount of time and focus. Day traders need:
*Keep a constant eye on the markets
* Make quick decisions and execute trades at a moment's notice
* To be well versed in technical analysis
You have a strong understanding of the financial markets
Despite these challenges, with the right approach and the right tools, day trading can be a rewarding and profitable career
5- Event-Driven Trading. Event-based trading
An event-driven trading strategy is based on executing trades based on certain events or news that are expected to have an impact on the price of a security. Such events could include earnings reports, the release of economic data, or fluctuations in interest rates. The basic concept of this strategy is that these events can generate price fluctuations, providing traders with opportunities to make profitable transactions. Traders who want to thrive using an event-driven approach must possess the ability to quickly analyze and respond to newsworthy events.
6-Volume Spread Analysis (VSA)
The volume analysis (VSA) approach focuses on analyzing the relationship between trading volume, price range and price closing location. VSA assumes that variations in both trade volume and price spread may provide hints about upcoming price movements. To illustrate, when there is a rise in volume accompanied by a widening of the spread, this may indicate intense buying or selling pressure. This may indicate an imminent shift in trend direction.
7- Fibonacci Trading
Fibonacci trading
A trading strategy based on Fibonacci involves the use of a sequence of numbers where each subsequent number is derived by adding the previous two numbers. This approach helps traders identify potential support and resistance points within price charts. Followers of this strategy expect prices to often decline a certain portion of the previous trend—usually 38.2%, 50%, or 61.8%—before resuming their initial path. By using these retracement levels, traders are better equipped to identify the ideal moments for a decline. Entering and exiting positions in the market.
8-Support and Resistance Trading
Trade support and resistance
Traders involved in support and resistance trading recognize critical price points at which the value of a security has historically changed direction. A “support” level is defined as the price point at which sufficient buying momentum overcomes selling activity, pushing the price higher. Conversely, a “resistance” level is defined as the price point where intense selling momentum replaces buyers’ interest, resulting in a downward price movement. These pivot levels allow traders to strategically identify ideal moments to initiate or terminate trades by providing insights into potential trend reversals based on historical data.
9-Pattern Trading
Trading patterns
A pattern trading strategy focuses on spotting distinct formations in price charts that suggest specific trade entry and exit points. Recognizable patterns such as head and shoulders, double tops and bottoms, triangles, and flags are some of the formations that traders look for. These formations are believed to indicate potential future price movements, which enables traders to gain insights to make informed decisions. Although this technique can stand alone as a systematic approach to trading, it is usually combined with additional tools and methods from the field of technical analysis to enhance its effectiveness.
10-News Trading
News trading
The trading strategy known as news trading focuses on executing trades based on anticipation of news events that are expected to affect the price of a security. Traders who use this approach seek to profit from price fluctuations that typically appear after important news releases. This could include the release of economic data, earnings reports, or other news that is likely to significantly affect the pricing of securities. Success in news trading requires quick analysis and rapid response to newly emerging information about events.
11-Mean Reversion
The mean reversion strategy is based on the assumption that after a deviation, prices tend to return to their mean or “average” level. Taking advantage of these expected price corrections, traders who adopt this approach buy securities when they fall below their average value and sell them when they rebound. In practice, this method often complements technical analysis tools such as Bollinger Bands or RSI, which help identify conditions in which securities are overbought or oversold.
12-Trend Following
The trend-following strategy is centered on acquiring securities when their prices rise and unloading them when prices fall. This approach works under the principle of regulating securities prices. Moving in clear trends, which, if properly identified by traders, can be exploited for financial gain. Trend following strategies cater to different trading periods, from short-term to long-term endeavors, and can be applied across any type of security that demonstrates trending price behavior. Traders implement tools associated with technical analysis such as moving averages and trend lines in order to identify these prevailing trends. Trends within the market.
13-Gap Trading
Gap trading takes advantage of price discontinuities that occur between a security's closing price one day and its opening price the next day. These pricing gaps may result from various triggers, including earnings reports, adjustments in analyst recommendations, or major news developments. They provide opportunities for savvy traders to recognize these gaps and predict the next direction of stock movement. When combined with additional technical analysis tools and indicators, this strategy can prove particularly effective in identifying trading prospects.
14-Reversal Trading
Trading based on reversal strategies focuses on exploiting changes in the direction of a stock's price movement. Those using this approach look for important, back-tested trading indicators that indicate an impending trend reversal, including decreasing momentum, changes in trading volume, and patterns such as the formation of lower highs or higher lows.
The market cycle framework proposed by Richard Wyckoff is central to the practice of reversal trading. According to Wyckoff's theory, markets go through four distinct stages:
1-Accumulation
2-Markup
3-Distribution
4-Markdown
By utilizing this understanding of cyclicality put forward by Wyckoff's theory, traders are in a better position to anticipate and capitalize on potential trend reversals.
15-Range Trading
Range trading is a strategy that is applied when a security is constantly trading within a specific price range during a certain period. The top of this range usually provides resistance, while the bottom provides support. Traders using this strategy aim to buy at support and sell at resistance, taking advantage of price fluctuations within the range. To determine when to enter and exit a trade, traders often use technical indicators such as the Relative Strength Index (RSI). ), the stochastic oscillator, and the Commodity Channel Index (CCI).
16-Breakout Trading
In breakout trading, traders initiate a trade when a security's price crosses a resistance level or falls below support levels, signaling the beginning of a strong trend. The key to this strategy is to identify these support and resistance levels and wait for confirmation of the breakout, which is often accompanied by an increase in trading volume. Once a breakout is confirmed, traders set their price targets and stop-loss orders, with the former based on recent price fluctuations or the size of the price pattern, and the latter based on the old support or resistance level that should now act as new resistance or support.
How copy trades work
With Copy Trading, the investor has the option to automatically “copy” every transaction made by another trader, in order to replicate his performance on his personal account.
With Copy Trading, the investor does not put his money into the hands of the fund manager, i.e. another trader (as happens with common investment methods).
In this case, the investor simply opens a trading account under his management and then, via the Copy Trading platform, links his account to the account of the selected trader.
In practice, the funds are always in the possession of the investor, and the funds are never handed over to a third party.
Simply put, with the Copy Trading service, the investor delegates the management of his account to another trader (or more than one) who automatically copies his trades from him.
Key players
What are the basic components of a copy trading strategy?
There are many versions and nuances of many of the services offered, but below you can find the basic components of any copy trading service.
market
Being a financial instrument it is clear that the entire structure has been developed in the financial market.
The main market in which copy trading emerged and grew (due to massive liquidity) was the Forex market, i.e. the foreign exchange market.
Then, with the advent of CFDs, almost all other markets and their instruments joined the scene, including the stock market, stock indices, commodity market, interest rates, ETFs, and even the cryptocurrency market.
Mediator
Another essential element is the Forex broker, your constant companion. You can't invest in almost any market without it.
With Copy Trading, you need a broker to have a trading account through which you will receive trading signals from traders whose trades you decide to copy via the Copy Trading platform.
How to choose an online broker
Trader (or signal provider)
A trading signal provider is a trader whose trades you decide to copy.
Obviously, you may not choose a trader who does not have a visible history. Each platform allows you to monitor and evaluate different data regarding a trader's operational performance.
There are different modes.
Some platforms require an evaluation of the strategy before allowing it to be registered on the list of trading signal providers, while others record the performance of signal providers from the moment they sign up, thus there is the possibility of creating statistical data records for traders to consult and consider.
Seeing this data and knowing how deep and accurate it is is one of the most important elements for making the right choice of the best traders to follow.
Investor (or follower)
This is, of course, your role.
Copy trading is very flexible and can be used for many investment methodologies.
Each investor has his own goal and risk tolerance. Your task is to understand how to translate these two components: goals and risk management into concrete, practical options.
Copy trading platform
The final component, of course, is the copy trading platform, without which copying trades would obviously not be possible.
Before the advent of these platforms, investors who wanted to benefit from the experience of other successful traders used mailing lists or chat room services, but these tools were clearly not automatically replicable.
As we will see, there are different types of copy trading platforms, each with its own unique characteristics, and each with its own advantages and disadvantages.
It is up to you to decide which one to choose according to your expectations.
Transaction copying service
As mentioned earlier, there are brokers who are themselves copy trading platforms (sometimes called “Copy Trader Providers”).
However, for clarity and to explain the signal duplication process, we will refer to the case where copy trading services are managed by separate entities.
The copy trading platform is primarily concerned with two things regarding the actual signal duplication tasks:
It acts as an intermediary between the signal provider's broker and the investing broker (may be a broker or brokers).
The platform deals with the duplication and dissemination of signals from signal providers to several investors who copy them, according to the peculiarities of each of them.
Imagine you have a $1,000 account, but you want to copy the trades of a signal provider with a $100,000 account. His hypothetical investment of 1% in a new trade is equivalent to your entire capital, and you obviously cannot afford to invest the same amount, otherwise one losing trade will be enough to burn your account.
For this reason, we need to copy signal providers' trades proportionately. The copy trading platform takes care of this.
Your job is to provide them with the necessary instructions and specify the settings you want to copy for each trade.
With a practical example:
When the signal provider opens a new trade, the broker sends the data of the same trade to the copy trading platform.
The platform checks investors who are copying the signal provider's trades and provides them with copy trade settings.
The platform sends to each investor-broker the details for opening a new deal, but they are modified according to the client’s settings.
The broker opens the deal on the client's trading account.
This is all automatic. It happens in a few tenths of a second. The same goes for closing a trade, or for a change in stop or take profit parameters.
Signal provider
In copy trading, you can think of trading signal providers like assets in your investment portfolio, which is why it is often called a “people-based portfolio”.
Every trader has their own characteristics and idiosyncrasies, but there are some common categories under which we can classify them.
The first category refers to the techniques used in trading and we have:
Those who use fundamental analysis.
Those who use technical trading indicators.
Those who use price action strategy.
Essentially, most of the time a trader specializes in one of these three categories, but also has a basic understanding of the last two.
We can then group them by the time horizons in which they operate:
Long term traders (monthly or annual time frame).
Swing trader (daily or weekly time frame).
Day trader (1 hour time frame or daily time frame).
Scalpers (small time frames starting from seconds and up to several minutes).
Next, there are several factors that you will need to pay special attention to, to study the strategy and performance of trading signal providers. Among the most important of these factors are:
Find out how long the provider has had an online trading history.
How many instruments does he trade (does he specialize in one or diversify into many instruments?).
How many open trades does the signal provider typically keep open at one time?
How many trades does he execute on average (per day, week, etc.).
How long does the provider keep trades open on average?
What is the percentage of winning trades?
How much is the risk compared to the reward?
Follower
Investing in a copy trading strategy means becoming a fund manager.
The fund is yours, the capital is yours, and the manager is you.
You then decide what the goals of your fund are, what risks you are willing to take, and then look for the best solutions to build it, i.e. the best assets.
In our case, your assets will be specifically trading signal providers.
Many beginners make the mistake of thinking that the only thing that matters is finding the right traders and that everything else does not matter.
On the one hand, this is certainly true, but this is not enough.
Consider the example above, the signal provider has an account balance of $100,000 and you have an account balance of $1,000. If you cannot think straight, you risk burning your account even by following the best traders.
The factors you need to focus on and develop as a copy trading investor are:
Declaration of (reasonable) goals.
Identify, analyze and manage risks.
Find and choose between trading signal providers.
Choose each setting to copy trading signals.
Strategy implementation.
Portfolio management and monitoring.
What are the risks and disadvantages of copying trades?
Copy trading is a form of investment. As with any type of investment, you are putting your capital at risk. Anyone who says otherwise, that there are no risks, you should not take their word for it.
Copy trading can lead to high profits if the trader finds a successful trader to copy his trades. However, the biggest risk a trader will face when copy trading trades is market risk. If the strategy a trader copies does not work, he may lose money. Traders also face liquidity risk if the assets they trade encounter illiquid conditions when markets are volatile. Finally, traders can face systematic risks if the asset they are trading experiences sharp declines or increases.
Market risk
Market risk refers to the risk of loss due to changes in the price of a financial asset. The goal is to achieve gains from increasing the value of traded assets. Obviously there is a risk that the asset will lose value. Traders can protect themselves from market risks beyond what they expect to lose by using an asset allocation strategy. This means that only a certain amount of money is allocated to a particular strategy. When allocating all their assets to one trading strategy, a trader may face significant losses if an unexpected event occurs, and this may wipe out their entire capital.
Liquidity risk
Liquidity risk means that a person may not be able to exit positions at expected levels. The trading strategy's risk management method must have historical precedence so that the trader can see the maximum historical drawdown of the trader whose trades are being copied. The maximum drawdown shows the decline from peak to trough over the life of the strategy. This is a very important number because it allows traders to see the maximum amount they would feel comfortable losing at any given time if they chose to enter the strategy. For example, a trader whose trades are being copied may have a maximum drawdown of 25%. This means that one can expect to lose at least 25% of their capital at any given time once they start copying a trader's trades.
It is also useful for traders to gather information about the products and asset classes they trade. This is because each financial asset has a different liquidity level. For example, it will be easier for a trader to exit positions for the EUR/USD pair, compared to exiting emerging currency pairs such as the Turkish Lira, for example. When you copy trades for emerging market currency pairs traders, you should examine the slippage included in their returns, which can be an important factor during periods of increased volatility. One must also ensure that the spread (the difference between the bid and ask price) of a currency pair or financial asset does not erode the returns of the trader whose trades are being copied. Does this trader incorporate commission costs into his returns? Copying the trades of traders who make many trades will have high trading costs.
System risks
Emerging market currencies are more vulnerable to systematic risks. This means that one's funds may be locked up and the trader may not be able to exit his positions. This happened in the past. While this scenario is very rare, it should be included in a strategy as this situation can occur, especially in the foreign exchange market.
Here are some other risks that you will be exposed to and that you will be able to face:
Not knowing how the trading platform settings work.
Not recognizing the risks of a trading signal provider's strategy.
Not knowing how much capital to allocate to each signal provider.
You have no control over your investment portfolio.
Copy trading is not an activity that you set once, then forget about, and only remember when you want to make your profits. Obviously, it should not become a full-time job either, as its approach depends on the trading signal provider, otherwise it will lose its relevance.
The important thing is to find a balance, in order to constantly monitor the development of your money, and know how to deal with adversity.
Final words about copy trading
Copy trading is a portfolio management strategy where one copies the trades of another trader, and tracks that investor's performance.
Before you start copy trading, you should conduct your own market research – especially if you are not familiar with the way a particular financial asset trades and also your knowledge of the risks of leveraged trading.
Advantages and disadvantages of copy trading
Advantages
Copy trading has many advantages, especially for traders who are just starting their trading career or want to engage in trading without making it a full-time job. However, more experienced traders can benefit from it as well. Here are some of the advantages of copy trading:
Accessibility. Copy trading does not require prior trading knowledge, which makes it great for novice traders.
Access the experience of another trader. Copy trading allows you to benefit from the experience and knowledge of someone with more experience in the market than you.
Learn from the most experienced traders. By watching more expert traders, you can learn about the markets and expand your knowledge.
Portfolio diversification. With a wide range of traders offering copy trading signals, you have access to many markets and trading styles. It makes copy trading useful even if you are an experienced trader, because it allows you to access markets that you have little or no knowledge about.
Copy trading helps you save time. Since copy trading can be fully automated, you can participate even if you have a day job. Or you can use your free time to learn more about the markets. You can also devote it to your hobbies or social life.
Removes emotions from trading. It can be difficult to avoid emotions when you are risking your own money, and emotions can lead to irrational and suboptimal trades. Copy trading eliminates this problem, as automated trading makes it impossible for your emotions to influence the results.
Signal providers can earn extra money from trades. Expert traders can benefit from copy trading in another way – as signal providers. You can double your profits by allowing other traders to copy your trades.
Risks and drawbacks
Although copy trading is good, it also carries some drawbacks and risks that you should be aware of. To reduce risk, you need to diversify your investment portfolio (don't put all your eggs in one basket), limit the amount of money you allocate to any specific trader, and set up the risk parameters on the platform according to your preferences if the copy trading platform allows it. Consider the following points before deciding whether you want to copy other traders:
Less control. Copy trading (especially automated) takes control of your money out of your hands because you are blindly following other traders.
Limited learning potential. While you can learn some lessons by watching more experienced traders, the learning potential is somewhat limited. Unless you already know the markets, it can be difficult to know why the trader you are copying does what he does and why his trades win or lose. Nothing beats your own experience when it comes to learning how to trade, and copy trading simply doesn't allow for that.
Market risk. The markets are difficult to predict, and a trader who was profitable yesterday could face a losing streak tomorrow. Remember that past performance is not indicative of future performance.
Liquidity risk. Sometimes, your trade cannot be executed at the same price as the trade you are copying or executing at all. This can be caused by a delay between the original transaction and the copy transaction, as market conditions can change before your trade is executed. You cannot sell an asset if no one is willing to buy it or buy an asset if no one is willing to buy it. This is a risk that is mostly present if you are trading illiquid assets such as exotic currency pairs or low-cap stocks. To avoid this risk, you should copy a trader participating in popular markets. For example, it is highly unlikely that you will not be able to find a buyer or seller for the EUR/USD pair.
Systemic risk. They include geopolitical and other rare or unique events that are difficult or impossible to predict, but can still impact the markets. For example, when the Swiss National Bank dropped the euro's peg to the franc back in 2015, the EUR/CHF pair fell sharply. You should be aware that such events can lead to losses even for a profitable trader.
Copy trading can be expensive. Copy trading is often more expensive than regular trading. Sometimes, signal providers ask for a large upfront fee. Or they can get a commission for every transaction you copy. You should also be aware of your broker's spreads which can eat up your profits. While it is usually recommended to follow active traders, you should be aware that following a trader who makes frequent trades can result in commissions accumulating.
Reference links:
https://cryptoearningtips.quora.com/How-profitable-and-safe-is-crypto-copy-trading