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 need to be careful of. Trading as a multitude of different ways to make a profit; be it forex, day, swing or options trading.
What Is Mirror Trading?
- Mirror trading was a method first used in Forex, but now goes on in stocks, futures and options too. In fact, mirror trading has opened up other forms of trading such as social trading or copy trading. This style of trading brought in the new era of algorithmic trading. As a result, automated trades removes the emotion from trading.
Any body who’s made any type of trade knows how emotional it can be. FOMO trading, also known as, fear of missing out, just might be the most detrimental way to trade. Many times new traders see a stock that’s 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 falls back to support levels. Hence taking a loss. Taking a loss shakes the confidence of traders. Never let the fear of missing on out a move drive you to make a trade. Wait for the pullback.
Making a winning trade is very exciting. In fact, 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 (watch us do trading live each day in our trading rooms).
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 as well as past profits.
Once you select the strategy you want, all the signals required to implement mirror trading will be implemented by your broker. In essence, you as the trader don’t have to do anything because your broker is handling the trades.
When the developer of the strategy 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 (read our stock market basics page).
Just like with any trading method, there are pros and cons. The positives of mirror trading is the 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 a software mimicking an expert.
That also means you don’t have to be in your account every day. In fact, you really 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 in 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 thinking of 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. Check out a list of the best forex brokers.
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 (read our types of stocks page).
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’s going to be a lot harder to find a strategy to use when the market is trading in a range.
Risk assessment is another limitation to this method. You can see that a strategy made a profit. However, you can’t see the risks that were taken to achieve the profit.
Some methods may turn a good profit but took great risks to do so. That means that a bad day could wipe out profits because of the risks taken. Finally, and the most risky is NOT knowing what someones strategy is, and trading it anyway. Or having a delayed reaction to the strategy, or not implementing it properly. All these things could turn out to be very negative…for your account. Learning price action is going to be your best bet if you want to be an independent trader.
Is Copy Trading Legal?
- Copy trading is legal, however, it’s gained a bit of a bad reputation in the stock market industry. There is a fine line between following a trader that is getting in and out of highly liquid and reputable companies and a penny stock trader that’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 have the ability to copy another traders 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 being in control of 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 are looking for. Hence why we advocate for becoming self sufficient traders.
Should I Try Mirror Trading?
In order 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.