How can social traders identify a good master to copy?

Identifying a good master to copy is a bit personal and a bit of a science. On the one hand it does come down to your personal trading preferences. Do you prefer a trading master that looks like a wild risk taking bad boy or a trader who looks like a nerdy health professional?

Do you want the prospects of a big win and enjoy the drama that ensues or would you prefer a moderately performing trader that entails minimum risk and the prospects of sleeping soundly at night? While this makes up the individual element, the more scientific elements are really about managing your risk exposure.So that no matter which way you choose to trade, you’re putting your prospects in the hands of a quality trading master who really knows what they’re doing.

To make it easier, Leverate’sSirix social trading platform has a few indicators that help you identify a quality trader to follow.

• On each trader’s profile there is an overall risk level assessment where the master is rated out of 10, 1 being low risk and 10 being exceptionally high risk. This overall assessment takes into consideration a number of factors such as their average daily P/L, their maximum draw down along with their best and worst positions. Particularly in relation to this indicator you need to consider your own risk tolerance levels and the profit that you would be satisfied walking away with. If you have a low tolerance for risk then don’t choose a trader that has a rating over 3/10, if you have a higher tolerance, than still don’t venture beyond a rating of 5/10.

• Another important indicator is the number of daysthat the master has been in the system. Less than 3 months doesn’t show a reliable track record. In contrast, if the trader has been in the system for a year or longer that should give you a much better gage of their performance record. The chart covering that length of time will also indicate whether their trading experiences a lot of volatility of whether they’ve had a safe and steady progress.

• Look into how many people are copying a trader and how many people are profiting from him/her? Each profile clearly displays the number of copiers. The power of the crowd is really indicative because while one or two people might make an inaccurate assessment of the value of a master, dozens of people are not all likely to make the same type of mistake. A good league of followers is therefore around 50 plus copiers.By going into the master’s community you can also see the performance of those who are copying him. If most of the people who are copying him are losing money, it’s an indication that the master’s skills are not transferring well to other traders. At least more than half of the followers should be performing positively in order to convince you that it’s a community worth joining.

• While success rate is an indicator that is valued by many traders, I would be weary of giving it too much weightbecause it’s not necessarily a good reflection of profitable performance, as much as an indication of not having fallen below their stop loss. The success rate basically reflects how many positions a trader closed and how many of them were profitable. 100% is not possible and if a trader’s profile shows 100% walk away because undoubtedly he’s fudging the numbers. Considering that everyone has a 50% chance of either being cut out by their stop loss or still within their active range, you would want a master with a success rate that is over 50%.

• Instead, a more reliable indicator is the trader’s average P/L. When you consider that the S&P500 generally achieves a 10-20% increase than you want to pick a trader whose performance generally reflects that in their P&L or obviously does better.

• Those who are more risk averse should pay attention to the rate of the maximumdraw down. This figure represents the percentage that a trader has lost after having reached a peak on their graph. It can be used as an indication of risk and the volatility of their trading behavior pattern.

• Whilst analyzing the profile of a trader, you need to asses see how diversified is their portfolio. The quantity and quality of a trader’s portfolio isan indication of trading competence because diversification is a critical tool to hedgeoverall performance making them a good candidate to copy. A good master will have a variety of contracts, currencies and commodities that reflects numerous instruments and is dependent on the economy of different regions.

For your own social trading success, you might want to consider some of the following tips.

• In relation to timing, any time is a good time to start copying a trader once you can see that they are an ideal candidate. In terms of pulling out, if you have not made similarly good results over a month or two, that’s a reasonable length of time to determine that a certain trader is no long worth copying. 

• Always start with a small amount of money, around$100 or $200 per copy,to a maximum of $1000.

• If you find that your trading is not performing as well as your master, it is likely due to your trading terms being different.There is also the possibility that your master has access to trading instruments that you don’t have. This is an issue that you should raise with your broker, to get the necessary adjustments put in place.

At the end of the day, social trading is really easily made money.Instead of tediously analyzing the markets, you just need to spend a half an hour to an hour analyzing the performance results of successful traders. Once you’ve made your copies, sit back and enjoy as you start to watch the profits roll in!