I’ve often been asked,
Which is better, trading alerts or copy trading?
Honestly, that shouldn’t even be a question.
There shouldn’t be any doubt that copy trading is much more reliable and trustworthy, therefore better for traders.
Alerts? They’re great but mostly only for those who give them.
To make a long story short, you can’t fake legitimate copy trading services. All your moves and data are transparent and visible to the client.
You can’t say the same thing about alerts or signals where you can fake it all and still pretend you are a trading top gun. Don’t believe me? Keep reading.
So how do copy trading and trading alerts (or signals) work?
Alerts at work
Let me start with alerts. In theory, they’re a good idea.
A random trader is kind enough to share his wisdom and trading ideas with the public. He’s doing that conveniently through social media or some kind of messenger like telegram or WhatsApp. Signals usually have an entry point, sometimes also stop loss and take profit levels. Size is often not specified and that’s understandable as account sizes may vary. You can get anywhere from a few to hundreds of alerts every month, depending on the strategy of the signal provider.
The idea is that you copy these signals to your trading account, possibly making money along with your trading guru. For this possibility you pay a fee and, in most cases, you pay it whether you make money or not.
So in a nutshell: you pay a fee to receive trading alerts, which you later manually copy to your trading account. If the alerts are good, you make money. If the alerts are bad, you don’t. It’s as simple as that.
Now take a moment and read the paragraphs above again. It doesn’t seem like anything can go wrong, right?
Forget about those ridiculous profiles on Instagram with guys wearing 3 fake Rolex watches on one wrist while sitting in a rented Lambo in Dubai. Forget about all the fake information including in many cases, illegal claims that these services are risk-free and that the profit is guaranteed. Forget about all of that and think: what can go wrong with those trading alerts?
Oh boy, where do I start?
You’re smart, so I’m sure you can find at least 4 reasons why trading signals suck (big time!). Let’s see if you can get any right.
For one, with trading signals, you can’t verify if the signal provider is actually making profits on a real account and if he’s even a successful trader. The best way to find out would be to get a trading statement from this person through a service like myfxbook.
Fake signal providers will usually send a screenshot or a picture of an account with 100X (enter the number of zeros) USD in equity. Cool story bro, but my 10-year-old could create a picture like that in MS Paint. Should he become a signal provider too?
Check, verify, and inspect. Ask for proper statements and sufficient trading history. You have a right to know, after all, it's your money on the line.
If you don’t receive any kind of proof that this individual can make money, shouldn’t that be a red flag? Yes, it should and I recommend you leave that trader as fast as the Bentley on his Instagram pictures. Bye-bye, they can go and find suckers elsewhere.
Do you know the biggest problem in making money in trading? Human psychology. Why am I mentioning that now? That’ll be clear in a second.
Imagine you get 10 signals a day. You get alerts on your phone and you have literally only a few seconds to copy them at a somewhat similar price as was originally sent. Let’s say you’re in the gym, or you’re sleeping (is the signal provider from the same timezone as you?) or you are shopping or watching Netflix. The idea is that if you get the signal you have to copy it immediately. Not after 5 mins or one hour. Not every other signal or not even 95% of signals. All of them!
Alerts are all or nothing
How do you know if the one you are not planning to copy or you simply cannot copy will be the home run? Maybe the signal provider is actually an ace and he’s making money like a boss. Maybe he is but 20% of his trades make 80% of profits (Pareto, you know it from school!). What if you will actually miss THE trading signal, the one that will make 10% or, why not, 1000%!?
What if you not only can’t physically copy everything but also think that one signal is stupid and you decide not to copy it on purpose? Consider this, you’re using alerts because you don’t feel confident enough to trade on your own, or your own results aren’t satisfactory. I get that, but then you have no grounds to cherry-pick the signals. It's like you have a crystal ball and can see the future where this signal makes sense and another one doesn’t. If you can predict the future, why do you want to rely on external signals?
You understand now that if you copy alerts manually, you have to copy all or nothing, right? You can never be sure if the one you miss will make a difference or not.
1000% in one month? Is that even possible?
Yes of course it is, and maybe the guy that gives you those alerts is literally making this kind of money but if you do not copy those trades automatically, you will not be able to repeat those results.
Sneaky little beasts
Another thing, which is terrible in the alerts alone is that there is no track record. All you get is the signal: Enter here and close trade here. That’s it. It is really easy to delete the signal, which didn’t work out. Like a tweet or post on Facebook. The ‘guru’ recommends something, it doesn’t work out and after that, the recommendation magically disappears.
Yes, sure, someone could complain but you need to understand that this type of person doesn’t have permanent followers. He lives with newcomers. Nobody is staying with a fake guru for a long time. They lose money and move somewhere else. Fake gurus need new waves of clients. He doesn’t care if the existing clients are satisfied. He cares about getting new clients. And in order to attract the newcomers, he can delete the old losing recommendations, leaving only those that appeared to be profitable.
Alerts don’t protect you from your own mistakes
I mentioned trading psychology a little bit in one of the paragraphs above. I need to add a few sentences to that. Even if you follow trading alerts, you still have too much power.
Don’t get me wrong. It’s great to have full control of your investments, but if you don’t have the time, experience or knowledge and you decide to use external services, you should trust them and let them do their job.
I’m not saying that you should trust all trading alerts. No, but if you mistakenly decide to follow such a service then at least let it work for you.
Trust me that when you copy those trades manually, you will still feel tempted to change something, to modify, and most probably that won’t be done in a proper way.
For example, a trade could be approaching a stop-loss order. Your mind will tell you: move the stop loss, don't close it yet, the signal provider was mistaken, change the stop-loss because the market will soon reverse in your favour and so on… When you start to mess with that, really ugly things can happen. Not recommended.
Ok, enough, I will not bully trading alerts anymore. I will show you now why copy trading is a better option, so let me explain why in detail.
The pros of copy trading
It’s definitely transparency. In legitimate copy trading services, you have a list of strategies and providers with their history and all the relevant data. You can see if someone is trading on a real or demo account (the rule of thumb is to avoid demo accounts for reasons I don’t have to explain).
You can see the profit over a particular period of time, you can see the drawdown and other useful numbers. Can you see any of this data with trading alerts? Yes, probably only one: undocumented profit. You can’t see drawdown, profit factor or % of winning trades, basically, you don’t see much.
In automated copy trading, you’ll never miss a trade. They’ll all be copied to your account automatically. When you sleep, eat, or drink a bottle of wine with your wife, you won’t have to be looking at your screen 24/7, waiting for an alert. You can log out from the system and let the system do the work for you.
You can say when to stop
This, again, is connected to human psychology. In copy trading, you can cut off from signals when your account drops to, for example, 30% or any value you set. That’s done automatically. With alerts, you don’t have that kind of mechanism. It’ll be entirely up to you how long you choose to copy losing trades. As you can imagine, that’s not a good idea. Humans have this bad tendency to stick to something even if it makes no sense or it doesn’t work. This can appear in some drastic versions, like Stockholm syndrome. If you have a basic understanding of how the addiction works then you’ll know what I’m talking about here.
No faking, no photoshop
You can’t fake a legitimate copy trading service. Everything is automated and verified. My algorithms had to go through a proper verification process before I was able to join this program. That’s really good news for clients. I was pleasantly surprised that they don’t let random people and random robots provide signals.
It sounds great but I need to make one thing clear. Copy trading is better than alerts or signals but it doesn’t mean that all copy trading services work! There is no tool that can protect you from possible losses. The strategies provided can be verified and can have great results but they can still at some point lose money. This can happen for several reasons like a mistake in the code for example. It could be that the market entered a certain phase which makes robots inefficient. Maybe some unexpected event or a sudden market crash caused a huge single loss. Maybe the robot that was used was a martingale and it did what martingales do at some point - it crashed.
Martingales will be the subject of another article. In general, if you have any experience, you can easily spot martingales just by looking at the equity line or history of trades. This could be hard for a beginner though, so I’ll skip this part here.
As you can see, legitimate copy trading services can still fail. They can fail just like everything, so you just need to be cautious. They’ll still do better than random alerts but in investing you can’t take everything for granted. This is trading not a walk in the park, so don’t treat it like this.
OK, we get it, copy trading is better than alerts.
Yes, it is. There may be good trading alerts out there but copy trading is just taking them to another level. Copy trading are alerts that are more trustworthy, transparent and more advanced from a technical point of view. From the legal perspective, they’re also much easier to handle psychologically. In literally every aspect you can think of, copy trading is better.
That’s all for now. I’ll see you in the next article. Until then, remember to stay safe on the market by using only trusted and verified services.
Trading FX/CFDs on margin bears a high level of risk, and may not be suitable for all investors. Before deciding to trade FX/CFDs you should carefully consider your investment objectives, level of experience, and risk appetite. You can sustain significant loss.