Copy Trading Simplified

Copy trading is a simple and effective way to potentially make money in the financial markets. It involves following successful traders and replicating their trades. Instead of analyzing charts or having trading experience, you can rely on expert traders and mimic their actions. This is made possible by autonomous systems that copy the trades of the lead trader.

In the world of crypto, copy trading automates the buying and selling of cryptocurrencies. It allows you to copy the strategies of successful traders without spending a lot of time or having experience. By observing how other traders make decisions, both beginners and experienced traders can improve their knowledge and develop their own strategies.

Copy trading is a great option for beginners who want to benefit from experienced traders' knowledge without fully understanding the market. It also saves time for experienced traders and gives insights into others' decision-making. Additionally, it's a good way to diversify your investment portfolio. With copy trading, anyone can make profits from crypto trading without the need for extensive research or practice.

In this guide, we will cover the basics of copy trading and recommend the best crypto copy trading platforms for a hands-off approach to trading.

However, it is important to manage your risks properly to protect your capital and increase your chances of success. Here are some important guidelines to consider for risk management:

Risk Management

Many traders in the financial market, despite being skilled in market analysis, struggle to execute successful trades. One of the primary reasons for their lack of success is their failure to learn proper investment techniques and risk management.

To achieve success, every trade must follow three crucial steps:

  1. Entry
  2. Capital Management
  3. Exit and Take Profit

Each of these steps involves its own decision-making process.

Copy Trading gets rid of the need for the first and third steps, but it doesn't promise a foolproof way of printing money & investing

You still need to effectively manage your capital, otherwise you could suffer losses in the market and become the person who spreads the belief that copy trading is ineffective and a scam.

Capital management is the most crucial part of every trade. When traders face price fluctuations in the market, they often experience a cycle of fear and greed. This can lead to impaired decision-making due to the immense stress on the brain.

To prevent this from happening, it is best to have a solid plan before entering any trade, or even before starting to copy any trader.

Budget Allocation

Before engaging in copy trading, it is essential to determine your budget. In this example, the budget is set at $1000 (you can go as low as one dollar, just follow the math of this example). This amount will be used to enter trades and cover potential losses.

However, it is important to note that having a $1000 budget in our account does not necessarily mean we should use the entire $1000.

The first step is to move only 50% of our budget into our copy trading account. The remaining 50% will be kept in our spot wallet as a stable coin, at least for now.

If you want to test the waters without taking any risks, you can follow these steps using a Virtual Currency or VST on BingX. This allows you to try this strategy without any risk, although you won't be able to withdraw any profits. It's a good way to evaluate the strategy before investing your hard-earned money.

Trader Selection

With the remaining 50%, we will select 3 traders who meet the following criteria and distribute the amount equally among them. Please note that this strategy is only applicable to BingX Perpetual Futures traders. For Standard Futures and Spot Trading, we will address it at another time.

By diversifying our risk, we ensure that we are not solely relying on one person and putting all our odds on them.

Criteria:

  1. The trader must have at least 3 months of experience and past data on the Platform.
  2. The trader's risk level should ideally be below 3 and should not exceed 6 in any case.
  3. Their win rate should be above 70%.
  4. Their risk-to-reward ratio (R to R) should be at least 1-1.1.

If a trader meets these criteria, particularly the last two, the chances of losing money by the end of the month are very low.

Once you find three traders who meet all four criteria, you will evenly split your money among them. In the case of our $1000 example, you will invest approximately $167 on each of the three traders you choose.

Stop-Loss

It is important for you to set a stop-loss of 50% on your account. This way, out of the initial $1000 budget, your maximum risk level is reduced to $250.

Since you are diversifying between 3 traders, losing $250 will only happen if all 3 traders, that you have chosen, lose 50% of their accounts. However, if you follow the criteria mentioned above, this outcome is highly unlikely (not impossible, but the chances are very low).

Let's discuss different bad scenarios and their probabilities:

  • If 1 trader hits your stop-loss: Your total loss would be $83.5.
  • If 2 traders hit your stop-loss: Your total loss would be $167.
  • If all 3 traders hit your stop-loss: Your total loss would be $250.

Therefore, in the worst-case scenario, you would still have $750.

Not bad huh?

Timeframe

It is important to give each trader sufficient time before evaluating their performance. Market fluctuations can greatly impact short-term results, so constantly monitoring your account every 5 minutes or even on a daily basis may only add unnecessary stress and potentially lead to hasty and incorrect decisions. It is advisable to take a longer-term perspective and consider the overall performance and trends over a period of at least 1 month to make a more informed evaluation.

After a 30-day period, it is now time to evaluate and make the necessary adjustments.

Here are several scenarios you may encounter and the appropriate way to handle each:

  1. If any of the traders hit your stop-loss, you should remove them from your portfolio.

  2. If any of the traders have not generated a profit of at least 5%, you should remove them from your portfolio.

  3. If any of the traders have generated a profit of 5% or more:

       a. If the profit is over 100% (unlikely but possible), withdraw your initial investment capital and continue for another month.

        b. If the profit is below 100% (more likely scenario), withdraw your profits and continue for another month.

  4. If you have removed any traders from your portfolio, you can replace them by following the previous steps mentioned above.

What’s next?

If you do all the steps mentioned above and take a long-term view, in like 6-12 months, you'll have a bunch of traders in your portfolio who always make at least 5% per month without putting a big chunk of your money at risk.

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