Copy trading binary options is easy right? All you have to do is pick a winner and make a million? If that’s what you think then you must read this now!
Some Tips For Copy Trading Success
Copy trading binary options sounds pretty easy, right? All you have to do is pick a good trader and then ride their coat tails to a million bucks. Sadly, that is not the case. Copy trading is actually one of the riskiest things you can do with binary options. Especially if you approach with the wrong frame of mind. Believe it or not it is not as easy as it sounds and it does take some strategy. Assuming of course you have chosen a good platform. For more information on individual platforms I suggest you check out the forum for what LotzBotz has to say. There are dozens of available platforms, many of them little more than gimmicks to attract traders. One platform I can recommend is Signal Hive which was voted best binary options signals provider for 2015 (See more at: Binary Options; Best And Worst Of 2015), here is a video review of the service:
Copy trading is just like any other kind of trading; you have to spread your risk around. Blindly copying is not the way to go. Just because a trader you like has a great record doesn’t mean that will continue, or even if that trader will be trading when you want them to. For this reason alone it is a smart idea to follow more than one trader but there is still risk in that. You don’t want to use more than one trader if they are trading the same asset, you need to pick 3 to 5 assets and find traders you like for each. This way you are diversified in two ways. First, you are not relying on any one trader and second you are not locked into only asset. This way if one trader or one asset starts to lose money you still have four that are doing OK.
When looking for a trader to follow build a list of possibilities for each asset. If you were the coach of a football team you would want to have a first string and second string right? The same idea applies here. Obviously you want to pick the best one of the group, the one with the most logged trades and highest win rate would be my suggestion, but you will want to have a back up for “just in case”. It’s possible that the trader you like best isn’t trading enough, hits a losing streak or simply falls behind in the rankings. When this happens its time to rotate them out of your portfolio and rotate in a fresh trader.
When choosing assets try to avoid unwanted correlations. Correlations are when two assets are affected by the same catalysts. They are primarily found in forex pairs like EUR/USD and USD/JPY which, in this case, move opposite of each other. It is impossible to avoid all correlations, the market is intricatly entwined together, but you can avoid obvious ones. The reason is simple; it defeats the purpose of diversification. My suggestion is for a copy portfolio to look something like this; Gold, Oil, An Index, A Stock and two non-related Currency Pairs.
The final tip and perhaps the most important is to manage your trades and your traders. Use the risk controls provided by the platform, they are there for a reason. Simply put, this means don’t just follow and trader and sit back and forget it. Keep your trades small, I suggest using only 1-3% of your account per trade, and follow for short durations only. If not, even with a great platform and a good trader, you could come back to find your account wiped out.
Some Final Thoughts
Copy trading is OK. It’s OK to follow someone else success but you have to be smart about it. The first line of defense is picking the best platform. The next step is to actively copy trade and these tips can help. Don’t be a dufus and blindly follow the hot trader of the moment. Take control of your trading and be successful. If you learn something along the way even better.