Following Other Crypto Traders – Is It Good or Bad?
Successful trading is often a trial and error procedure; wise people observe others and learn from their experiences. Learning Technical Analysis (TA) is a good option for those familiar with reading and analyzing charts. Every competent analyst has to view almost the same charts. So one can learn a lot from other traders, but blindly following can create critical situations.
The following points are worth considering:
- Following experienced traders is highly valuable in respect of understanding and analyzing the charts and other market indicators uniquely. Observe and follow them to explore the market situations and trends.
- We see many market analysts but a few charts to see and explore. It means all the people view almost the same chart and even can get the same resultant approach, such as a bullish or bearish market. Remember the event that happened in the end days of December 2018 named the inverted head and shoulder in BTC was observed and accepted by many analysts as the indicator of a bullish market instead of a bearish market sign. The consequences prove to be as opposite. All the good analysts admitted and appraised their market examination at that time.
- Remember, there is no guru in trading. The top successful traders have enjoyed a combo of luck and skill. So, if you are inspired by any successful traders and take their advice as a sacred truth, you definitely should set yourself ready for a misadventure or a potential disaster.
- In short, one should not follow anyone blindly. Instead should observe and learn from others, explore the basics of trading and technical information and then uniquely implement all this.
By the above-stated thoughts, one must get a conclusion for setting up the trading map or a pattern to implement their learning from observation and exploring the market and leading traders’ footprints. If still there is any confusion, then the following points can add value.
Hence:
- We see that a single chart is a source for all traders, and they analyze it according to their approach and goals. Some of them elaborate on it one way, and the others take it opposite. In the execution, it can have supporters and counter-traders. If the traders’ decision remains successful, it raises their value and impresses the succeeding traders. So, beware of such personalities that look smarter than their actual status only by betting in favor or opposite of their favorite assets or trends.
- Probabilities are significant. In trading, it is often considered that traders with 50% continuous winning trades are always of the correct opinion about the market. On the other hand, it is a fact that a large number of traders lose o long-term trades as the market often performs unpredictably. The winning and professional traders have tricks and techniques that are difficult to know and implement for the beginner. Due to these reasons, blind trust in the pro traders can harm you. The main hindrances include lack of experience, ignorance about the role of position size, stop loss, and significance of time restrictions.
- You should be adaptable, which is not practiced by most traders. Like other financial markets, cryptocurrency markets also have two main trends, bearish and bullish. The traders often prefer to play on one side of the market that is bearish or bullish. When you follow a pro trader that prefers the bearish market, you can lose if you practice the same in the bullish market. The same is the condition for bullish traders in a bearish market. So, to win the situation, you must adapt to the market you are operating in instead of staying attached to your ideal trader.
- Honesty is very precious while dealing online. You’ll meet plenty of partially dishonest traders. If you find a trader who is honest but losing trades in series, this could be alarming, and you could stop following him because of difficulties.
- Style compatibility with your ideal role model plays a significant role in your success. If you face the same situation, be ready to bear the tremendous loss in the result. Every type of trader is not suitable for every market. For instance, a HODLer has a different long-term goal that cannot be achieved by following a day trader that focuses on making a profit in a short time regardless of the profit percentage. In the same manner, if a cash trader and a HODLer participate in the same trade, the outcome behavior could be very different. The cash trader will be happy to earn a 10% profit using 1% of his portfolio, and HODLer can be disappointed in missing out on the potential gains. So, knowing your potential, skills, and goals is necessary to avoid messy situations.
The point to ponder is that a significant thing that every individual should practice is trading/investment. It reveals yourself to you.
In the field of cryptocurrency trading, having the right person as a mentor or the individual having goals similar to yours is a good thing and pushes you towards success. But if you did not select your mentor wisely, you could finish everything or might be disappointed with your performance outcome.
Another simple point is that if you can’t impersonate the person you are following can lead you to a messy situation. It could happen because their successful strategies don’t need to work the same for you.
To become a good trader, don’t follow anyone blindly. Instead, observe and learn from others and then implement it in your unique way. Get ideas for you, but conduct your analysis to better understand market trends and situations. It’ll increase your confidence even if you lose the trade. There will be the satisfaction that I did everything on my own, and also, there will be a lesson other than regret.
For a clearer understanding let’s discuss some significant benefits and the drawbacks.
Advantages of following other traders
- Time saving
Success in any field is complex and requires effort and time. But it is also a fact that many traders don’t have enough time to make a trading strategy that leads to winning the market. If they focus on cryptocurrency trading, their other financial activities become disturbed, which is not bearable. It doesn’t mean that they should leave the trading and passion for being a pro trader. There are ways to manage all this. Following the other successful traders and imitating their winning techniques enable anyone to perform successful trades and grow a portfolio.
- Allow market participation even with the lowest market knowledge
Market analysis is an essential part of cryptocurrency trading. A practical analysis needs basic and technical knowledge along with market nature. People may focus on TA and FA separately and not value each other. However, a firm grip on both the fundamental ideas helps a lot in understanding the procedures and markets. Following a successful trader frees you from performing hectic analyses and provides a tested trading strategy that increases your success chances.
- Provides a Good Starting point
The platforms offering the trading programs with other traders tested strategies and user-friendly interfaces. Novice traders can start trading at these platforms by following easy steps. The conventional trading system offers plenty of trading tools, technical choices, and diverse order types. When you follow a successful trader and imitate their style, you get an excellent opportunity to learn and earn good profits.
- A great learning opportunity
Experienced traders are often willing to manage a community and their prominent position. Their efforts in this regard open new opportunities for newbies and learners. Joining such events provides learning from expert traders and interaction with an intellectual community that leads to your professional grooming.
- Explore a vast canvas of service providers
In crypto trading markets, the signal providers maintain public profiles that show their performance to everyone. It facilitates the beginners to observe different trading styles and their relevant historical data. The beginners can get a good idea by viewing the signal providers’ performances. However, trading success in the past doesn’t confirm future performance.
- Improved risk management
Cryptocurrency trading involves high risk, and successful traders use plenty of techniques to reduce the risk. Following any expert trader doesn’t eliminate the risk but gives plenty of options to manage it successfully. The availability of a variety of risk management techniques allows for managing the risk factor more effectively. For example, they can choose the best risk management approach, like controlling the position size or transaction size according to their account type.
- Elimination of emotional factors in decision making
Do you know what the most challenging hurdle in your success in cryptocurrency trading is? Yes! Your emotional self-control. It is challenging to manage your emotions and keep them away while making decisions. When you genuinely follow some other successful trader, you fully trust it, and replicating that helps keep your trades isolated from your emotions and gut decisions.
- Diversification
Numerous traders have leaned toward trading tools since they are more comfortable with trading those specific resources or in light of the fact that their trading method functions admirably with those particular instruments. Following the trading stunts permits you to extend your trading skylines and get insight into different Marketplaces that you might not have explored in any case. It might be particularly valuable while the trading tools you favor enter a time of meager change, lessening the number of trading chances accessible to you.
- A chance to increase revenue for signal generators
On the off chance that a broker is right now worthwhile and happy with their exhibitions, there is no glaringly obvious explanation for why they shouldn’t become the firm and foster additional income streams for themselves.
In your role as a signal supplier, you have the capacity to charge a membership expense to your subscribers along with a presentation expense. It will permit you to produce a reliable wellspring of cash for yourself, fostering a pay source that will really rely on how well you do as a trader instructor).
- Beneficial for both experts and newbies
Adherence to an experienced merchant is helpful for brokers, just for those who need time to take part in any trading alone. Replicating another person’s trades might be an essential technique for expansion for proficient brokers.
For example, a trader might observe that they are most quiet while utilizing a swing trading procedure, yet they might follow somebody that has shown that they are successful while scalping. In the event that their trading approach isn’t working great or they aren’t tracking down an adequate number of opportunities to exchange, replicating or the following exchange could assist them with making up for part of the shortage.
Threats in Following other traders
We’ve seen the benefits and key points about the following of other seasoned traders in managing our cryptocurrency trading portfolio. But everything has two aspects positive and negative, we’ve discussed the positive side now let’s consider some related drawbacks.
- Incompatible Settings
When you follow a seasoned trader, you imitate all the settings used by him. Here can be a chance that it doesn’t suit your situation, account type, and trading technique. Furthermore, its compatibility with the followers account type and leverage limit is significant. If it is excessive to the allowed limit you may come to an early close and also may result in losses.
- Absence of diversity
We’ve seen that most of the traders rely on almost same charts and market trends. The only difference is their approach towards that signal resource. It indicates the lack of diversity regarding the signals and charts that guide for successful trading. Return on different signals show an excessive correlation. If you follow other traders to execute your trades, you may suffer from inadequate level of diversity across numerous assets.
- Lack of due efforts
There might be a peril that following the given information are erroneous or changed, making unsafe proposals. The robot, that work free of human interaction and control, generated signals that give an impression of being manually traded on utilization. Huge misfortunes may be brought about because of critical news occasions or programming issues. It is dangerous to follow a certifiable record that is just a demo account. The ease in availability of trading strategies cause a laziness in traders and lack of due effort and diligence can result in unexpected outcomes. The followers can meet losses instead of profits.
- Market Risk
A critical news occasion, like a central bank activity, could create a sudden, speedy, and huge development in the trade markets, bringing about a zero record balance or a stop-out. Similarly, if we talk about Signal Trader, you don’t have a crisis plan assuming the broker unexpectedly quits seeing the signal.
In that situation, the signal traders change their trading approach. It makes them more passionate, which can be more dangerous for trading. Due to the critical drop, the signal broker risks being pulled out of the trade by the expert trader he is following.
The risk of causing misfortune as an outcome of movements in the worth of a resource is alluded to as market risk. This work plans to benefit from an ascent in the cost of the resource that is being traded. Without a doubt, there is plausible that the worth of the resource might diminish.
The traders who utilize a resource-broadening methodology might shield themselves from the market risk against the cash amount they expect to lose. This shows that simply a specific measure of cash will be put towards executing a specific methodology.
The traders might build the security of their ventures by spreading their assets in more than a few different trading strategies. Traders might expand their possibilities, creating a gain in different economic situations by utilizing a broadening procedure.
- Liquidity Risk
At the point when there is liquidity risk, it is reasonable that one might not be able to leave possessions at the projected level. A verifiable point of reference must be associated with the risk management system permitting the broker to see the traders’ most elevated drawdown in the methodology’s set of experiences. The most extreme misfortune addresses the top-to-box fall all through the strategy’s validity.
This is a fundamental parameter since it empowers dealers to generally see the most sums. They might be OK losing at any one time, assuming that they choose to connect with the procedure being referred to. A broker, for example, may have a misfortune breaking point of something like 20%. This demonstrates that once an individual starts following the Trader’s Actions, they ought to set themselves up for a misfortune out of nowhere. Gathering data on the things and resource categories that traders are managing could likewise be advantageous.
Final Thoughts
No doubt there is a huge temptation in following the other seasoned traders and collect good profit while using their strategies. But it should not be blind following-ship as market volatility demands your vigilance. When you follow other traders with an expectation of good fortune earning, the results might be highly unexpected as it depends on numerous factors. So, start you crypto career with due diligence and with best wishes.
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