Some time ago, the Daily Telegraph published another of those articles on “day trading” that appear from time to time in the mass media.
This I found by chance the other day in a few searches related to day trading.
The article, from 2014, was “The return of day trading: you can earn your living by copying other traders.”
The article deals with two of the hottest topics in the world of trading.
One, the one of all life: the day trading.
And the other, one of the new trends that is hitting very hard lately: copy trading.
Before going on I wanted to comment on something quite significant with respect to these two concepts.
Both are deeply related to this modern world in which we live. A modern world characterized by rapidity and short-termism, associated with day trading; and on the other hand to the standardization of society at all levels, of which trading is just another. This standardization in trading translates into activities such as copy trading, which is nothing but a logical evolution that had to reach this, already, complicated world of investment and trading.
The issue of social trading – another way to call copy trading – is to copy the supposedly best traders of the different platforms or brokers and thus be able to take advantage of that “experience” in the markets of the previous ones, with which there is noo need to learn to trade ourselves.
New duo of the investment world: day and copy trading
This sounds very good, does not it?
Traders with experience, win with the experts, without the need to learn trading.
All very well, but of course, there is a difficult thing to explain and more to understand.
Traders with experience and experts?
First of all, I have to say that this of the experienced traders is quite misleading, because in the trading world a curious thing happens: that thing is that even people who have spent years – and when I say years I mean many years – trading assets and operating in the short term, does not make them winners of day trading.
Moreover, the vast majority are losers in day trading after years of experience, and no matter how hard they try, they will not be able to beat that beast that is called “operational costs”, which means that winning consistently in the intraday is something almost impossible.
However, we must not consider that the experience is useless in these areas because there is no doubt that with more experience we can play better, lose less or win more, no doubt.
This trading is something that you always learn, even 20 years after having started negotiating your first actions.
The thing about expert traders is another separate issue, because this is where the crux of the matter comes from, especially in the way that these “experts” are placed in the classifications of the different copy trading platforms.
It turns out that for one reason or another, those who are usually in the top positions of these classifications are people with accounts of 6, 12 or 15 months, or even less, in which the supposed experts are gaining a large percentage; put 100, 200 or 400%.
Those traders, after, for example, 6 months of trading and a gain of 150%, are those that appear in the top positions of the “best traders” classification.
Faced with this panorama, the inexperienced, those without experience who join these fields, believe that they are facing true masters of trading.
They are considered teachers because they are able to earn 100% in 4 months.
The problem is that this is something that only works in the short term, at least 99.999% of the time, since the vast majority of these traders do nothing but follow martingale strategies or strange variants of it.
One of the typical “stratagems” is not to count open operations with losses as losing operations, even though they may account for 60% of the account or more.
Those operations are still open and the winners are all closed, usually with very short profit takings.
Earn easy money with copy trading?
Imagine the scheme like this: I’m gaining operations of 20 pips, one after the other, up to 200 or 300, or these are appearing in my account as “benefits”. Meanwhile, as I operate without a stop loss, my losing trades do not appear because I have not yet closed them and are hanging with losses of 500 or 1,000 pips threatening to become a catastrophe.
This, in addition, is very typical with stock bull markets, many of which give us such good trends for so many years that many of these “experts” have only to bet on the upside as possessed and take a few ticks from time to time, always trusting in the trade that has gone wrong, by buying at a short-term peak, for example reversed and re-rise in the next recovery.
The bad thing in this last case is that even the secular bull markets have an end, or some bear market of by 20 or 30%, in which all those strategies become useless.
This reminds me of the Beardstown Ladies or the SuperKaren.
Short-term profits, perfect marketing, people eager to earn easy money and we have a perfect cocktail, an Espresso Martini trading.
The article begins with the small story of a certain Clark who joined ZuluTrade, one of the leading brokers in the sector.
After analyzing the data began to copy what he considered the best traders, possibly those who were earning what I said before, type 150% in 8 months or something like that.
One of the copied was a trader who operated for 10 months and never lost an operation.
He never lost an operation, I repeat.
Does that sound right to you?
Do you think there is someone possible to get that in trading?
How can they get it?
Well, more or less as I told you before: taking short benefits, type 4 or 7 pips from time to time and without using stop loss, “praying” so that the market in which they are operating does not turn around and drop 1,000 or 2,000 pips, moments in which these “trend” systems kiss the ground.
Well, in the case of Mr. Clark, he said that at first he made some money but later the market moved aggressively against him, before which he decided to leave this “trader” with minor losses, but other copiers , according to him, measured in millions of dollars they lost all the capital.
“It was epic,” he said.
A colossal loss
The funny thing is that this “experienced trader” or “expert” probably won several thousand Euros in commissions by volume of operations down the road.
Not bad for a suicidal system.
The wisdom of the masses in social trading
Later, Yoni Assia, the director of eToro commented on the point of view that the benefit of copy trading was to participate in the “wisdom of the masses”, whatever that may be, because when seen, it seems that the opposite is the truth.
Gustave Le Bon agreed with me in the sense that the masses are anything but wise.
Another known speculator, André Kostolany, used to say that betting against the mass was the right thing to do.
According to Assia, the traders who copy the leaders tend to have better results than those who do not.
In this I can give you the reason, but mostly because maybe when these novice traders operate they only lose their money much faster than they do by copying.
Well, returning to the topic of the beginning of the thread, we can see again how the mass media Daily Telegraph cannot avoid using the term “day trading” to refer to the world of copy trading,
However, from what I have seen in eToro, there are a lot of people who do not do day trading and who try to do operations with a lot more quality, seen in weeks or months.
It is in those traders, perhaps, that you should concentrate and see what they do, so that you can go see what you should do and what not.
In this sense we continue with the eternal search for financial wealth.
Nonetheless, that eternal search is stuck in an incredible tangle of very subtle traps, in such a way that those who get that financial wealth are the same ones who promise it to you.
The final part of the phrase “promise” is essential for this.
Greetings and good trading.
Original article: ¿Es el copy trading el secreto para triunfar en el day trading?