Using CopyTrader – When Trades Can Go Wrong

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Oh dear me. Ouch. That stung. Take a look at my copy trading history below and look at the figures in the top row. Yes that’s right 350 bucks in the red. So how did that happen, and can these stings be avoided when using CopyTrader?

CopyTrader Warning

Firstly lets take a little look at the trader’s previous performance. I’ll summarize this briefly, as I don’t want to get boring with a load of stats. Overall, he was doing well, and copying his trades was bringing in a few bucks a day without fail – when I say a ‘few’, I mean rarely going past the ten bucks mark, and although that doesn’t sound a lot, it all adds up, especially when you consider it was taking no effort on my part. So what happened?

Firstly, and most importantly, notice the amount of units, over 10,000. CopyTrader copies an amount proportional to the amount you have allotted to the trader. One problem, is that until you actually copy a trader, you don’t know what lost sizes they trade in, as this is not listed on their stats or history. This makes things a little bit difficult, and I’m not sure why this situation exists, maybe the software isn’t 100% at the moment, or it could boil down to being a data protection issue.

Prior to this, when I first started copying him, he’d been doing smaller trades. I did take him off my copy list, but a few days later when I decided to go back he would appear to be upping his game. Having said that, he was chasing a mere 25 point move, but with a massive Stop Loss.

Luckily, I’m still on a demo account, but after looking on the guy’s profile, there were a few negative comments about him from traders using real money, who’d just started copying the guy as he hid a bit of a rough patch.

Over time, this guy was doing very well. BUT, what I’m learning, and what they will tell you on the forums, is that you’ve got to be able to take a few hits. In all honesty, although CopyTrader is (IMO) a good system, it is never going to be 100% perfect – if it was, the traders being copied would be taking a cut from the copiers.

Can these stings be avoided? The short answer is a definite NO, although, perhaps the potential for these occurrences can be eliminated by testing out the traders on demo, before adding them to your copy list. The problem is, that to my knowledge, the only way you can limit such stings (without watching the trades and manually closing them), is to limit the amount you assign to individual traders which would be another way of imposing your own stop loss. The problem with this would be that by doing so you would probably be limiting your profit potential due to the reduction in your stake size (which is proportional). It is a question of scale, big potential profits will always run hand in hand with big potential losses, and the reason is simple. If you are copying a trader, your only stop loss is the size of your proportion of the account allotted to each trader. You are copying their stop loss – if you applied your own stop loss independently (which you can’t do anyway), you may be messing with the trader’s strategy and may botch the trade (the same would apply if you had the ability to apply your own take Profit).

So, in short, the math must be done, but luckily, there are Demo Accounts available, to make the learning process a less financially painful one.

Forex Trading On Announcements Example 1

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Trading on announcements is one way to grab a few (or a lot of) fast moving points. The example below I noticed when opening my trading console in the lunchtime – was too late to open a trade (and anyway I’m still on a Demo Account). However, whenever a hike like this happens you can always take advantage of the usual ‘rebound’, but more on that later.

event trading forex example news

Ok, case in hand, as you can see from the image above, we have a news announcement regarding Bank Of England Interest Rates. As soon as I saw this I opened up my GBP/USD chart and wahay, look at those points and that time frame below.

forex announcement trading graph

If you listen to ‘pros’, they will tell you that there are three potential directions a currency pair will take on an event like this – way up, way down, or nowhere. No one can truly predict what is going to happen and how the market will react. So why am I telling you this if I can’t impart some great trading wisdom? Well, this site is all about ‘opening eyes’ and learning.

As you will see from the graph, something big happened (not as big as the gold shifts the past few days – something else to investigate). As a learner myself I am wondering how exactly to deal with these announcements. Options – placing orders, and scalping.

At my present level of experience scalping would be the option, but I’m guessing there are some pros out there who would have set up some orders the night before – I’m guessing a couple of ‘hedge bets’ (either way) with low stop losses, and not too ambitious Take Profits. Of course this would probably have to be done the night not the month before.

On the subject of scalping though, the move was so fast you would have had to have been glued to the screen, which for some part time traders is not an option. And, you would have to ‘hop on’ at the right point.

However, whenever these rapid swings occur, busting through the Bollinger bands, usually, when the ‘knee jerk’ subsides, there is a ‘reconciliation’, and a couple of hours later in this case, several point had been gained in the opposite direction. Perhaps for a more conservative trader this would be a sounder trading option, but then again, maybe my guess at ‘hedging would be also a Conservative and highly profitable option. Any comments on this would be much appreciated, especially from Forex traders who are experienced in this field.

(Hmm, I did notice that unless I’m mistaken none of the traders that I am copying took advantage of this situation).

Choosing Traders To Copy Lesson 1

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Lets have a look at picking a trader or traders to copy.

The first two traders I copied I found by searching OpenBook by ‘low risk’, and picked a 100% winner and 97% winner (performance over 3 months). After a couple of days the small profits were coming in – I won’t go into details about amounts and lot sizes, because at the moment, the focus of what I’m trying to do in the first instance is not lose.

Of course Forex is all about cash, but if your learning to surf you don’t jump out of a helicopter and ride a 100 footer, you you learn how to stand up, and stay on the board, and to stretch the analogy further you do it out of water (a Forex Demo Account).

Anyway, the third day, the one trade closed 65 points down, which over an extended period where the trader’s losses are rare is probably quite bearable and will not have too bad an impact on your profit. Anyway, I decided to change Copies, and dropped both of them, (one of whom I may go back to – average 5 bucks a day off £200 investment – you won’t get better interest rates than that!), and decided to revisit the Openbook search.

This time I used the best ranked along the top navigation, and filtered to get 4 100% performers over 3 months. The results (most of them) are below.

copy trader history 27 sep 11

Copy Trader History 26 september

Ok, so let’s take a look at the most important thing first. The gain column shows all figures in green – which means every deal ended in profit – not a bad average.

Ignore the small amount for the moment, instead, focus on the difference in each trade between the spread and the profit. Subtract the spread from the profit to get the net amount of points moved. Some of the moves are tiny, some not, but add them all together and you get a fair amount of points over a couple of days, and remember points make prizes!

Now, if all of these trades were made on a lot size of 10,000 (will go into that another time if you are unfamiliar) this at a buck a point, would be a very nice earner for having done nothing other than follow some reliable traders.

All good so far. This bring us to the next issue. How to increase these profits. There are two avenues, one is to get more in depth with the copy system amounts (you can only use 20% of your overall account). The other is to manually copy trades. Both these will be explored, noted and brought to you in another post – I’m not trying at some cliffhanger effect here, please remember that this diary is real – I wish I had the time to knock it all up overnight but I don’t. See you soon.

Please note, that the above has just shown profit over a couple of days, but there are more. If you are interested, then try the OpenBook and Copy Trader yourself, I’d advise using demo money to start, but that’s up to you, just remember never to stake more than you can afford to lose.