Is Copy Trading in Crypto a Smart Strategy or Just a Trend?

Everyone is talking about copy trading, from crypto influencers and educators to skeptics and regulators. Many trading platforms’ marketing teams are also recommending this strategy. But is it as effective or risky as these entities claim?

Put simply, copy trading works, and many crypto traders can attest to that. And most traders can leverage this strategy, including beginners who want to skip the learning and trade like pros. But that’s just the tip of the iceberg. Read on to find out more. 

The Appeal of Copy Trading in Crypto

Copy trading is a popular strategy for various reasons, starting with accessibility. Many trading platforms support copy trading, including popular options like eToro and Kraken. Discover everything about reputable sites that support crypto copy trading at https://investingguide.co.uk/. 

Various categories of traders are copy trading enthusiasts, especially newbies, part-timers, and risk-averse traders. They find this strategy incredibly appealing because it makes crypto trading easy and saves time. Even beginners with little knowledge can participate in the market with copy trading. Experts, too, can leverage it whenever they don’t have time to conduct extensive research and actively manage trades.

Moreover, most copy trading platforms are cost-friendly. Take eToro as an example. This broker has a free-to-use copy trading feature known as CopyTrader. It has no additional costs and can therefore be accessed by any interested party, including traders on a tight budget. The best platforms have also made finding the best traders to copy a walk in the park. You just have to compare multiple options based on aspects like portfolio composition and profit/loss history.

Is Copy Trading a Smart Long-Term Strategy?

Copy trading can be a smart long-term strategy for the following reasons:

1. Reduced emotional decision-making

Emotional trading can lead to immense losses. Unfortunately, according to statistics, over 30% of all traders struggle with this problem.  A wide variety of emotions can bring your trading career to its knees, from hope and overconfidence to greed, fear, and anxiety. Luckily, you can lessen their impact with copy trading.

If you’re concerned about emotions getting the best of you, leave decision-making to seasoned pros experienced at keeping emotional trading at bay. Just find an expert with a good track record and copy their moves, from entering to exiting positions. You’ll not only avoid emotional decision-making but also lessen your exposure to mental fatigue.

2. Exposure to proven strategies

Relying on unproven strategies is highly risky and unwise, especially where strategies developed by novices are concerned. Since crypto markets are volatile and unpredictable, consider reducing your risk exposure by relying more on strategies that have already been tested and shown consistent performance.

Copy trading allows you to leverage strategies crafted and tested extensively by seasoned traders. The best part is that you can gauge the efficacy of every trader’s approach based on win rate, drawdowns, and returns.  

3. Compounding growth

Copy trading can put you in the best position to profit from compound growth. While replicating other traders’ moves, your profits can be reinvested over and over, eventually compounding into a decent nest egg.

Compounding growth is a perk that no crypto investor can afford to ignore. With it in your arsenal, you can build significant wealth within a reasonable timeframe. Even gains that appear small can build into a substantial sum over time with compound growth in the picture.

4. Portfolio diversification

Crypto copy trading offers a unique way to diversify your portfolio and maximize gains. As a copy trader, you can follow and mirror multiple traders simultaneously. The traders you copy will have different strategies, helping you optimize your portfolio. For instance, one trader might focus on day trading Solana, another on swing trading BTC, and more.

While copying multiple traders, you also avoid being overly exposed to the risks of investing in a single asset. If a particular trader’s strategy doesn’t work, you can rest assured that other investors’ gains will counter the losses.

5. Time efficiency

Crypto markets are open 24/7. Unfortunately, as a human, you can’t trade all day, every day, or exploit every opportunity. You have to take breaks for sleep, meals, etc. And trying to go the extra mile every day won’t do you any good. In fact, it can lead to issues that will undermine your ability to make smart decisions, including physical and mental fatigue.

With copy trading, you can seize as many opportunities as possible without overworking or making a full-time commitment. Your chosen trading platform’s systems will ensure you’re plugged in by replicating trades while you’re at work, asleep, spending time with your loved ones, etc.

Is Copy Trading Just a Trend?

Copy trading isn’t “just a trend” – not by a long shot. It might seem so since many influencers and social media ads are marketing it as a get-rich-quick scheme, but it’s more than just a trend. That is because, first and foremost, this strategy has been around for over a decade. Traders started leveraging it way before crypto trading caught on.

Most importantly, copy trading solves multiple practical issues. For starters, it provides a workable solution for individuals lacking sufficient time and skills. Tools like a crypto heatmap can offer additional insights into market movements, but copy trading goes a step further by letting users mirror experienced traders. It also shouldn’t be categorized as a simple trend, as it’s been successful in other markets, like stocks and forex.

How to Approach Copy Trading Wisely

Copy trading might have many advantages, but it also carries some challenges and risks. Firstly, while leveraging this strategy, your success depends on the lead trader. If they make poor decisions, you’ll most definitely lose some money. Not to forget, copy trading doesn’t make you immune to the risks of crypto trading, including high volatility and potential losses.

Approach copy trading wisely. Before copying any trader, check how long they’ve been trading, their performance, and risk appetite. You should also copy more than one lead trader whenever possible because staking everything on one individual can be risky. Finally, if a specific lead trader’s performance drops, pull out. Never allow blind loyalty to cloud your judgement or prevent you from ditching an under-performing individual.