Copy strategy or whether you can blindly trust a trading guru
The saying that there is no need to reinvent the wheel is familiar to every person, and its postulate can be applied to stock trading.
That is, when trading on the stock exchange it is not at all necessary to invent your own unique strategy; to make a profit, it is quite enough to copy the actions of leading financiers.
The essence of this strategy is that as soon as information appears that one of the large investors has purchased shares of a particular company, you also make a similar transaction.
For example, Warren Buffett invested in securities of Japanese companies, you open a similar transaction in the hope of profit, because this man has made thousands of profitable transactions.
You can get information about someone making a large purchase from the news or from specialized analytical services.
The advantage of this strategy is that large investors often possess proprietary insider information that is not known to the general trader community. This significantly increases the chances of a successful buy.
Is a copy trading strategy really guaranteed to make a profit?
It is known that there are no 100% exchange strategies, therefore, the option under consideration cannot guarantee you a profit.
There are quite a few reasons for this:
Investor Mistake – No matter how reputable the investor whose deals you are going to follow is, they still make mistakes.
For example, Buffett made an $11 billion mistake when he bought Precision Castparts Corp. stock in 2016. He couldn't have foreseen the pandemic and its impact on the aerospace industry, which includes Precision Castparts Corp.
Market manipulation is the artificial influence on price. With hundreds of billions of dollars at your disposal, it's quite easy to change the existing price of a stock.
The scheme is as simple as it gets: first, a buying spree begins on a certain company's shares at a low price, causing the price to gradually rise. Then, information is released that someone has bought a large amount of shares, and small investors begin buying the asset as well, leading to an even greater price increase.
After this, the hedge fund or the person who organized pump sells the previously purchased securities at the maximum price, causing a price collapse.
It is clear that you are among those who bought these shares at the maximum price and are unlikely to have time to sell them before the fall begins.
A late purchase means you buy when the price is already at its peak. This is because you don't receive information about the purchase immediately; it first reaches news agencies and a select group of people, and only then is it published.
At this point, the stock price may already have reached its maximum and a correction will begin, that is, a fall, which will provoke you to close the trade at a loss.
Despite the above, it's not that following or copying a strategy is completely hopeless. It's just that you shouldn't invest all your funds in one asset. Proper diversification of investments .
In addition, before making a deal, it would be a good idea to check the current price level, how close it is to the global maximum, and what the chances are for further growth.
Read also about copying trades in the trading platform - https://time-forex.com/interes/socyal-treyding
