Recognizing Good Traders

Recognizing Good Traders

This lesson will cover the following

  • Community feedback
  • Trading history and gains
  • Portfolio, profile and risk management

social_tradingSocial trading is based on the premise that you will use the information provided by other traders so you don’t have to learn all the required skills, yourself. But how do you know if the information is any good? You can’t simply take everything in good faith, right? Of course you can’t. However, you are asking the wrong question, here. You can’t know if the information is good until you either test the presented data, or you decipher the charts and get all the information, yourself. Even then there is no guarantee that you will get it right.

Sometimes even trends lie. Sometimes the unforeseen occurs. This is why you can never be sure in the information you’re provided with, whether you get it through technical analysis or through other traders. A better question here is how can you be sure that a trader is good? Sure, we all make mistakes but a good trader will make a lot less mistakes than a trader who seems confident and knowledgeable but is actually full of himself. In this section, we’ll help you answer that question.

Community Feedback

One of the most popular tools to evaluate a trader’s performance in the social trading sector is community feedback. If there have been traders who have followed the one you’re looking for in the past, then they will have left some sort of feedback through comments and ratings. Many platforms even have their own Top 10s based on the number of followers a trader has (and other factors, of course). Point is, this is definitely one of the indicators you can look out for. Successful traders usually have many followers and are copied by many. This means that there will be a lot of feedback you can rely on when you’re making the decision of whether to take his advice or copy him.

However, community feedback can only take you so far. Sometimes a trader looks much more successful than he is due to the community. It’s not impossible for people to leave good comments because they like the style of the trader, even though he may have lost a bit of their money (they might be even be convinced that the short-term losses are a part of a long-term winning strategy). On the other hand, a trader can be good, yet unpopular. There might be negative comments because someone didn’t like his attitude, or simply because he didn’t get that 500% profit the users who copied him were counting on.
social_trading_community

Point is, community feedback can serve as an indicator, but don’t let it be the only one. Use to confirm or disprove what you’re already thinking.

Trading History and Gains

Some platforms allow you to have a look a trader’s investment history and current portfolio. You can see exactly how much they’ve gained (usually in %) so you can deduce how good they are. However, this is also not completely reliable. There are many traders with over 400% gain in the last six months who have many losing trades. One of the things they might do in order to boost their ratings is to leave losing trades open. If you see that a trader has many losing trades open, this is usually a bad sign (unless it’s a part of a really long-term strategy).
fx_trader
That being said, it’s still not a bad idea to inspect those numbers. Learn as much as you can about the trader. Take a look at their previous and current actions. For example, if someone claims that certain stocks or currency is about to go way up, but is not buying anything, probably doesn’t believe his own information. If they claim it and back up their words with actions, but they’ve had considerable losses in the past few months, this may still mean that you shouldn’t be following their advice.

Portfolio, Profile and Risk Management

As we’ve said, the portfolio can tell you a lot about a trader. If he is backing up his words with action ,then at least he believes in what he’s saying. If he doesn’t have many opened losing trades, it’s quite possible that he even knows what he’s doing. All we’ve talked about so far should be used conjointly in order to form a better understanding of the nature of the trader so we know whether or not he is trustworthy and competent enough for us to follow and copy him.

The profile can tell you a lot, as well. A good trader who wants to be followed will take the time to complete his profile. If the profile is not completed, this might indicate that the trader is relatively new, or that he doesn’t take too much interest in his own profile. If that’s the case, better find someone else to follow. In many cases, the profile can tell you if a trader is using real money or virtual money. Don’t take any action before you’ve confirmed that real money are traded. Anyone take huge risks with virtual money.
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Finally, a good trader has good risk management. Make sure that you find a trader who has your level of risk management. You will be surprised at how sometimes people will risk much more than you would like them to, so if you don’t like such surprises, make sure that you find someone with your level of risk management.

Final Words

22955584-the-end-icon-or-sign-to-finish-point-way-outEven if you find the right people, there is no guarantee that they will make you money. However, you can be almost certain that the wrong people will lose you money so go that extra mile and don’t be lazy – find exactly whom you’re looking for in order to get the best chance.