Mirror trading is a method that allows you to mirror a trading strategy. In other words, you’re copying the trades of experienced traders. There could be positives and negatives to copying another person’s trading strategies, especially if you are following a stock pumper, which you must be careful of. Trading has many ways to profit, whether forex, day, swing, or options trading.
Mirror trading was a method first used in Forex, but now goes on in stocks, futures, and options, too. Mirror trading has opened up other forms of trading, such as social or copy trading. This style of trading brought in a new era of algorithmic trading. As a result, automated trades remove the emotion from trading.
Anybody who’s made any type of trade knows how emotional it can be. FOMO trading, known as fear of missing out, might be the most detrimental trade method. New traders often see a stock running and want to get in on the move. What they don’t realize is that many times when they buy during a run, they’re buying at resistance levels.
As a result, once they’ve made a trade, the stock returns to support levels. Hence taking a loss. Taking a loss shakes the confidence of traders. Never let the fear of missing out on a move drive you to make a trade. Wait for the pullback.
Making a winning trade is very exciting. It can make many a trader get cocky. Once greed sets in, you typically blow up your brokerage account.
With mirror trading, you select the style or styles you want, and your brokerage account implements those strategies.
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Different Mirror Trading Strategies
You can implement different strategies in mirror trading. For example, risk management is one of the strategies you can have your broker implement and past profits.
Once you select the strategy you want, all the signals required to implement mirror trading will be implemented by your broker. Essentially, you, as the trader, don’t have to do anything because your broker handles the trades.
When the strategy developer executes a trade, the trade is duplicated in your account using software. Hence, the name mirror trading. Your account is mirroring the plays of someone else.
The Positives
Just like with any trading method, there are pros and cons. The positive of mirror trading is reduced emotional trading. Mirror trading determines all entries, exits, and any amendments to the trade.
All the stress of trading is gone because you’re not in charge of the trade. If you’re new to Forex, it can be overwhelming. Hence having software mimicking an expert.
That also means you don’t have to be in your account daily. You only have to check it once a week. If the strategy you selected isn’t producing the desired results, you can change it.
Since mirror trading is primarily a Forex strategy, it’s offered on their platforms. As a result, the strategy is tested and verified by the platform. They want to filter out losing trading strategies.
If you’re considering going into Forex trading and they offer the mirror trading method, ask them how a strategy has been verified. You want to make sure you’re choosing a winning strategy.
This is a chart example of the marijuana stock $MJNA. The pot stock sector is notorious for pumping and dumping, and traders unthinkingly follow the hype. This stock pumped up from $0.0131 to $0.22 in less than a week and came crashing back down. This is why it’s important to learn support and resistance.
The Negatives
While mirror trading sounds like it does great, there are some limitations to it. For example, there are limitations to the strategies you can implement.
Many times, the strategies do well in a trending market. However, the market trades in cycles. That means it goes up, down, and sideways. It will be a lot harder to find a strategy to use when the market is trading in a range.
Risk assessment is another limitation of this method. You can see that a strategy made a profit. However, you can’t see the risks taken to achieve the profit.
Some methods may turn a good profit but take great risks to do so. That means a bad day could wipe out profits because of the risks taken. Finally, and the most risky, is NOT knowing what someone’s strategy is and trading it anyway—or having a delayed reaction to the strategy or needing to implement it properly. All these things could be very negative…for your account. Learning price action will be your best bet if you want to be an independent trader.
This is a daily chart example of Bitcoin $BTC. The crypto sector runs on hype and speculation and can be very volatile. Notice the large drop in price from 21,448 down to 15,802 in just a few days. Mirror traders would have lost their life savings if they didn’t know how to read price action.
Is Copy Trading Legal?
Copy trading is legal. However, it’s gained a bad reputation in the stock market industry. There is a fine line between following a trader who is getting in and out of highly liquid and reputable companies and a penny stock trader who’s pumping and dumping low-float stocks. Be careful following penny stock pumpers.
Stocks and Options
Mirror trading is a Forex trading strategy. However, can you also use it to trade stocks and options? In short, the answer is yes.
Mirror trading is copying another person’s trades. As a result, you can follow someone in and out of their trades. Your trading software for stocks and options may not be able to copy another trader’s trades.
However, trading services and trading rooms may have “gurus” that want you to mirror their trades. As a result, you can mirror trades with stocks and options.
Here at the Bullish Bears, we’re firm believers in gaining the knowledge of controlling your trading destiny.
Other traders have different goals in mind when they place trades. As a result, what they’re looking to trade may be different than what you want.
Following someone in and out of trades doesn’t have the success rate most new traders seek. Hence, we advocate for becoming self-sufficient traders.
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Should I Try Mirror Trading?
To try out mirror trading with software, you have to get into Forex trading. Currencies are traded on Forex. It’s also the largest, most liquid market in the world. Forex is the abbreviation for foreign exchanges.
The Forex market is open 24/5 because you’re trading world currencies. It’s become incredibly popular to trade because there are fewer rules, fees, and commissions.
Is mirror trading in the Forex market something you should do? That’s a question only you can answer. Should you copy others’ trades when trading stocks and options? Do you want to be in charge of your profit and loss? Would you rather follow the trades of a guru? We do think there is a happy medium. You can have a mentor who helps you learn trading and doesn’t force you to eat out of his hand.
Frequently Asked Questions
Mirror trading is a risky way to trade. It involves following another trader's strategies, and you're waiting for them to call out trades to you, which is not a safe way to trade.
Mirror trading is not a profitable trading strategy because over 90% of traders fail. You can make money if you get lucky and choose the right person, but it probably won't be profitable in the long term.
Mirror trading is risky because you don't know the other person's trading style. Also, you don't know when they will enter and exit their trades beforehand.
