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Follow one trader or spread your risk?

hughbriss
Dec 02 2014 at 13:29
4 posts
I wonder if any experienced social traders could give me their opinion on whether it is better to follow one system/trader or whether you are better to spread your risk over a number of traders?

I have selected one trader to follow and I made the decision based on lower drawdown and consistency of monthly return rather than just overall return.

togr (togr)
Dec 02 2014 at 17:26
4862 posts
hughbriss posted:
I wonder if any experienced social traders could give me their opinion on whether it is better to follow one system/trader or whether you are better to spread your risk over a number of traders?

I have selected one trader to follow and I made the decision based on lower drawdown and consistency of monthly return rather than just overall return.

Always diversify the risk
More traders, more accounts and more brokers are more safe

hughbriss
Dec 03 2014 at 07:39
4 posts
There are only a handful of traders I would actually want to follow! I suppose the risk of one tanking is offset by the gains made on the others. Is there a way to cut off a system if it loses a certain amount, like say if it has more than a 40% drawdown or something?

growthera
Dec 03 2014 at 13:56
86 posts
In theory, spreading the risk is better. However, following more systems does not automatically mean lower risk. Considering the majority of systems end up failing, following more systems means increasing the risk you have a big potential failing system in your portfolio. Therefore, avoiding a system that has the potential to fail big is more important then having the highest profit potential systems. Homework is key!!

hughbriss
Dec 04 2014 at 07:28
4 posts
Thanks for the reply, that sort of chimes with what I was thinking. One question that springs to mind is that if the majority of systems end up failing then is social trading all it is made out to be?

As mentioned before my homework is based on the reliability of monthly return rather than the size of the return. In your opinion what are the most important factors for spotting a good system?

growthera
Dec 04 2014 at 09:53
86 posts
Some items I value a lot are: maximum drawdown (how much risk is the system taking).
During a drawdown, how does the system do money management (taking more, or less risk?)
average pips/trade (because after slippage, commission is there still some left for yourself?)
average win vs average loss
Performance analysis is a specialized discipline all by itself, and there is still a lot I can/should learn here. But the general approach I use is focus in on how risk is managed rather then profits.
Oh and yes, social trading is certainly not all it is made out to be. That does not mean there are no good systems out there. Keep in mind though that social trading exists to create trading volume, and system rankings reflects that. I have not seen a social trading site ranking yet that I trust.(I am starting to trust darwinex, as their approach does not seem to be based on volume, but I don't think the social trading is operational yet). Don't know about this site, as I don't know how they rank.
My advice would be to start reading as much as you can on system performance evaluation. I found that every site has some good pieces, but no site has a good all-round evaluation. This site is part of the best, because of the transparency of seeing all trade history and downloads allowing you to to your own offline calculations. There is some great stuff at forexfactory as well, and FXBlue.

ZOOM
Dec 04 2014 at 23:23
39 posts
Always spread your risk. Diversify into as many traders as feasibly possible.

ForexAssistant (ForexAssistant)
Dec 05 2014 at 03:16
465 posts
I have a slightly different opinion. There are three general types of forex trading, technical which tends to pay the best but has the most risk, fundamental trading - needs heavy resources but safer and profitable too if you have the finances to swim with the big fish, and systemic, the safest but doesn't make the big bucks todays traders are looking for.

I suggest learning first and demo trading until you know that you know enough to go live. The problem with following other traders or letting them trade for you is the question of what happens to your income when your trader dies? I like robotics. There are good and bad in robotics just as there are in live traders except the robots can be back-tested and shorten the evaluation period.

A robot is consistent, reliable, tireless and won't sell you out for its own well being, it has no emotions at all. One robot took over 3,000 trades in a 15 month time period during the financial melt down of 2008. It lost one trade for 8 cents. No human trader could ever do that, you'd have to be a machine.

How to spot a potentially good robot; ask the developer if you can try it out on a demo, free for 3 months. If he says no, he has something to hide. If he says yes, try it and see if it will do what you want it to do. Always learn what your system does before using it on a real account.

How to spot a potentially good trader to follow; ??? Probably look for time on the job. In this line of work, if you are not good at your trading, you won't be around long. Look at Vontogr for example, he's been on here since Feb, 2011 and trading before that. He is one of the traders I would definitely check out.

Crazy Traders is another well seasoned professional. If they can't help you themselves, they can tell you in what direction to look for what you are trying to accomplish. Only after you find one that works, should you begin to search for other things to diversify into. Don't let too many options confuse you, focus on one thing, get to really know it, then branch out.

But if Vontogr trys to tell you anything about martingale systems, don't listen to him. He tends to say silly things about systems he doesn't personally use.

Bob

where research touches lives.
ChrisMuzhik (ChrisMuzhik)
Dec 05 2014 at 11:45
65 posts
don't put all your eggs in one basket, alvays devide risks

There can't be enough money
hughbriss
Dec 05 2014 at 11:48
4 posts
Ok, thanks very much for taking your time to reply. I will take your observations on board.

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