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01.11.2021

How to Choose a Trader to Copy Trades and Create a Balanced Portfolio

Copying deals of successful traders is practically analogous to PAMM (percentage allocation money management). Cope trading is an overall strategy, especially for novice traders looking for ways to generate passive income. 

How to Choose a Managing Trader  

Choosing a trader based on profitability alone is a gross mistake. There are many indicators that more accurately reflect a trader’s experience and ability to manage assets.  

After all, the more fantastic the earnings results are, the more likely the following month may show a deep price drawdown. 

Try to form a balanced investment portfolio. Choose traders who complement each other. Here, your main goal is to diversify your risks and get a regular income. 

Most often, pro traders recommend using one of the methods for optimizing an investment portfolio: 

⚪ Diversification. It involves creating a portfolio with various assets that complement each other in terms of risk. 

⚪ Balancing of a trading portfolio. The second method focuses on high returns by increasing risks. Note, more conservative ones should balance risky assets. 

Selection Criteria 

There are three parameters that experts recommend evaluating first. Let’s analyze each of them in more detail. 

Trader’s Experience and Achievements 

A user needs to assess parameters such as: 

⚪ Trader experience 

⚪ Frequency of trading operations 

⚪ Trading assets 

⚪ Amount of deals 

It would help if you focused on managers who have been working for at least 12 months, show minimal drawdowns throughout the year, and have achieved positive results. 

Risk Management 

The first step is to assess the level of risk that traders usually indicate in the description of their profile. Sometimes brokerage companies additionally describe a trading style of a managing investor. 

Always pay attention to: 

⚪ The amount and time of maximum periods of loss. It would be perfect if there were no sharp drops in profitability and a user works according to a clear strategy. 

⚪ The type of trading strategy. The equity indicator will help you understand whether a trader works with the “Martingale” strategy or uses averaging of trades. 

Requirements 

Most often, a trader requires 10% to 50% profit per month. When analyzing a trader’s account, you should also pay attention to: 

⚪ The sum of the minimum and maximum transaction volume 

⚪ Frequency and time of open orders 

⚪ Methods used for diversification of risks 

Summary 

Choosing a trader for copy trading is a crucial step for the clients of a brokerage company. Do not rely on the total profit of a managing trader throughout the year. 

Key parameters that you need to analyze: 

⚪ Account age 

⚪ Reviews of other users  

⚪ Trading style (conservative, moderate, or high risk) 

⚪ Drawdown level during the last 12 months 

⚪ Trading instruments 

⚪ Commission percentage 

The main thing is not to blindly copy each operation but to consider the potential level of risk and correctly assess a trader. Define your profit goals and do not strive to hit the big jackpot in a month. 

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