The most difficult aspect of social trading usually boils down to identifying and choosing the best possible signal providers (SP) for your account.
The aim of this article is to present you with a general guideline on how to find and choose the best SPs on any social trading platform/network.
Generally, we aim to follow only experienced traders who actually know what they’re doing and not to fall into the hands of lazy inexperienced signal providers whose only aim is to make commissions by trading for you.
When selecting a signal provider to follow, bear the following in mind:
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The first thing you’ll want to check out is their profit chart. Choose a SP with a steady and consistent rise in profit over the months and avoid traders with erratic or jagged graphical representations.
Someone with a smooth steady rise in profit could be a good trader to follow after considering some other facts.
The jagged profit graph suggests that the trader may be gambling with his funds with periods of high profits as well as periods of high losses.
Avoid these kind of traders. See image to the right for illustrations.
The next step is to check their maximum drawdown. This simply means the amount of money lost from their account before they start making back the money again.
In social trading, drawdown means a lot and you’re advised not to trade live without fully understanding what drawdown entails.
Please note that drawdown is not an actual loss rather it’s the loss seen before the trader starts making back his/her money when the trade is still open. An actual loss is a real loss seen when the trade has been closed.
SPs with high drawdowns are very risky and dangerous to follow because they may cause your account to go into margin call if you don’t have enough capital to bear the loss.
In this regard, avoid SPs with 100% winning trade because they get high drawdowns by leaving their trades open for months until it returns to profit level.
Ideally, you should learn to follow Signal providers with 20% or less maximum drawdown. A SP who consistently makes profitable trades for months and just a single trade wipes out, say 40% of their total account size is too risky to follow because he has a high drawdown.
Another important factor that helps you choose the best signal provider to follow is the amount of trades executed by the trader. Look for traders with at least a minimum of 100 closed trades.The higher the value, the less likely that the trader’s success can be attributed to luck.
Look for SPs with up to 12 consecutive profitable months with little or no loss in between.
This is exactly how you know professional, trustworthy and experienced traders.
In combination with the minimum trades, also ensure that the SP has been in the social trading platform for at least 12 months delivering consistent profitable trades.
Another relevant way to find out the best traders to follow on social trading platforms is to check the level at which other followers trust them.
This you can do by checking the amount of real money people have invested in order to collect signals from the provider. The more the number of real people following the SP with real money, the better. However, this shouldn’t be your only criteria for choosing the best signal provider.
Also, you can check the profit gained by following the SP. This is usually displayed on the profile page of the SP. When you see many people with profits following a particular SP, it suggests that people like the trader and his strategic method of trading.
One of the ways used to determine the best trader to follow is to check the level of the activity on their account. Follow traders who has actively traded within the last 5 weeks.
This highly varies because some SPs may be long term or medium term traders while most followers are short term traders.
Day traders usually follow SPs who don’t leave their trades open for more than 24 hours.
Follow a Signal Provider who:
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