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 that someone has made a large purchase from the news or from special analytical services.
The advantage of this strategy is that large investors often have proprietary insider information that is not known to a wide range of traders. And this significantly increases the chances of a successful purchase transaction.
Is a copy strategy guaranteed to make a profit?
It is known that there are no 100% exchange strategies, and accordingly, the option under consideration cannot guarantee that you will receive a profit.
There are quite a few reasons for this:
Investor mistake - no matter how reputable the investor you are going to repeat trades is, he still makes mistakes.
For example, Buffett made a mistake of $11 billion when he bought, in 2016, securities of Precision Castparts Corp. He couldn't have foreseen the pandemic and its impact on the aerospace industry, which includes Precision Castparts Corp.
Market manipulation – that is, artificial influence on the price. With hundreds of billions of dollars, it is quite easy to change the existing stock price.
The scheme is as simple as the world; first, the purchase of shares of a certain company at a low price begins, thanks to which the price gradually increases. Then information is made public that someone has bought a lot of shares and small investors also begin to buy this asset, this leads to an even greater increase in price.
After this, the hedge fund or the person who organized pump sells the previously purchased securities, causing a price collapse at the maximum cost.
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.
Late buying – that is, you buy when the price is already at its peak. The reason lies in the fact that you do not receive information about the purchase instantly; first it goes to news agencies and a certain circle of people learn about it, and only then is it published.
At this moment, the stock price may already reach its maximum and a correction will begin, that is, a fall that will provoke you to close the deal at a loss.
Despite the above, it cannot be said that the strategy of following or copying is completely hopeless; you just should not completely invest all your funds in one asset. Proper diversification of investments .
In addition, before a transaction, it would not be superfluous to check the existing price level, how close it is to the global maximum and what are the chances of further growth.
Read also about copying transactions in the trading platform - https://time-forex.com/interes/social-treyding