Can Anyone Trade So Easy?

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Originally Posted On: https://medium.com/@bitcoinpam/can-anyone-trade-so-easy-1dac06eb20ac

I’ve only been a trader, of any asset, for three years and it took a good while to learn it is challenging to trade so easy. What does that mean? It simply means developing a way to manage risk and make a profit by trading assets.

A lot of research was required, not only about the asset and market I wanted to trade, but also technique, emotions, best practices, platforms, and more. Not many are really willing to put forth the effort required to learn something completely foreign to them. Add to that the fact that a good understanding of finance, accounting, and currency must also be learned in order to trade successfully.

Simply put, trading is the taking advantage of rising and falling markets to buy and sell assets for profit. Sounds easy enough, right? Many confuse trading with investing. Investing is done to make a profit through similar market participation, but with an expectation of larger returns over extended periods as a result of buying and holding assets. Whereas traders enter and exit many positions over short timeframes to take frequent, but smaller profits.

Short-term losses to a long-term investor are generally not acted upon. Traders, however, develop short-term strategies to profit quickly from fluctuating markets hourly, daily, or weekly. A trader looks to outperform the buy-and-hold investment approach by generating more profits in a shorter time. Instead of a 10% or 20% annual profit sought by an investor, a trader might look to make a 10% return each month, or perhaps a 2% profit each day or even each trade.

There are generally these 4 types of traders based on the timeframes and individual strategies:

• Scalp Trader: Positions are held for seconds to minutes, nothing overnight.
• Day Trader: Positions are held throughout the day only, also no overnight positions.
• Swing Trader: Positions are held from days to weeks, waiting to sell for profit.
• Position Trader: Positions are held from months to years, more similar to investors.

Online trading platforms allow anyone who has a computer the ability to invest in a variety of markets and theoretically trade so easy. Financial assets such as shares, forex or bonds, or derivatives such as CFDs, futures or options, or various currencies can be traded for profit. Buy it low, sell it higher, you make a profit. Sell the asset lower than the buy price, you suffer a loss. Sounds simple enough.

Not so fast. Trading is risky and requires a good risk management strategy, as well as control of your emotions. Fear and greed are two powerful emotions that can quickly turn gains into losses. The goal for me personally was to recognize the triggers that led to making emotional decisions, then develop a strategy that worked, and stick to it.

Initially, I was prone to missing trades that met all my entry criteria, which led to the conclusion that my risk was too high. I began trading a smaller percentage of my portfolio to counteract my fear of losing. Once I started to trust my trading strategy, I increased the percentage, but only slightly. What’s hard to avoid is making adjustments to strategy just because of a few winning trades. This is the greed emotion, and it is as powerful if not more so, than fear. I found it less stressful to stick to what made me comfortable and control the urge to force bigger gains.

Greed can make a trader stay in a position too long, and fear can cause one to exit too quickly. Emotional trading ignores the criteria set for entering and exiting a position. The best way I found to help set the right criteria was by copying the trades of experts.

I am not a gambler. I’ve never been one to bet hard-earned money on games of chance or the lottery. Taking the time to study market cycles, learn how news and events effect market movements, and how to trade current trends was critical. It is possible to trade so easy by heeding advice readily available if one takes the time to look for it.

Consistent execution of winning trades requires talent and hard work. Watching a winner at work is a way for novice traders to learn and profit at the same time. While it did take some time to locate traders worth copying, knowledge gained by watching their winning strategies was invaluable. Over time, I was able to analyze and understand a strategy when a position was entered, then adjust that strategy to suit my own goals.

Expert traders who permit copying their trades are compensated in some manner. Either a monthly platform subscription fee, or a share of copy-profits is required. I learned the following after using and testing many platforms:

• Avoid “experts” that are free to copy
• Performance statistics posted are not an indication of profit expectation
• Fees can often outweigh trading profits
• Copy expert traders that do not compete for followers
• Allocate a decent portion of your account balance to copy trades
• Avoid platforms that require a deposit of your funds vs. API Key exchange connection

Copying experts that are free to copy is the riskiest option. There is a reason they are “free” to follow. Performance statistics are not an indication of profit percentage. The percent gain or loss shown is based on ROI per trade. A month’s worth of trades may have resulted in a 23% gain using 1.5% of the trader’s portfolio balance. That does not equate to the trader’s account balance increasing by 23%. I have seen many comments from copiers proving most novices do not understand performance statistics.

The fees charged by the platform to copy expert traders can cost more than the gains earned. Particularly if the copier is trading a small account balance. Gains are measured by percentage. If the expert is trading an account worth $10,000, and you are trading $1,000 — and a trade is entered using 2% of the expert’s account ($200), that is only a $20 trade in your account, assuming you have allocated 100% of your balance for trading. If the gain realized is 12% — the expert’s ROI was $24 on the trade, while yours was $2.40. Factor in the copy platform subscription and the exchange fees for each trade, as well as any withdrawal fees, to determine your own actual gain. Obviously, fees incurred when trading small amounts can significantly dent your gains.

Expert traders competing with other platform experts to get followers tend to take higher risks. The higher the performance metrics, the more followers an expert attracts, and yet many copiers lose money. Not every trade results in a gain, and certainly not when copying for only a short period of time. Unless you can analyze a trader’s metrics for individual trades over time, the ROI % posted is completely useless. Unrealistic expectations and lack of understanding on the part of copiers is a major issue when selecting an expert to copy.

I have used platforms that require my trading funds be deposited, and those that connect to my own exchange account via API Keys. To me, it is important to have control of my funds at all times. On platforms that connect via API Keys, I can manually exit a trade, and deposit or withdraw funds at will. I also avoid platforms that do not allow allocation of a percentage of assets for trading.

While there are many benefits to copying the trades of experts, copy trading is not an activity you typically set and forget. If used as a learning tool, copying expert traders is much like “on the job training.”

There are only a few platforms on which investors can “plug and trade” while maintaining full control of their assets. If a copier understands how copy trading works and has realistic expectations, copying can allow one to trade so easy. You have to kiss a lot of frogs before you find that perfectly balanced trading Prince or Princess! Once you find the right mix, stick with it and enjoy the benefits an expert trader can deliver.