Forex Mirroring, or mirror trading, is a forex strategy that allows traders to copy or mirror the actions of other traders. Introduced in the mid- to late-2000s, the automated strategy has grown in popularity, especially for new traders or those who are prone to trade by emotion. If you’re looking for a way to break into the market, you might like to consider mirror trading. Let’s first look at how it works exactly and some of the pros and cons you should consider.
How Forex Mirroring Works
Mirror traders must choose a trading strategy from the many strategies that are available on the broker trading platform. You’ll need to analyze the history and details of the strategies in order to pick one that will suit you. Consider the amount of investment capital you have, your risk tolerance, your investment goals, and more before choosing your strategy. Once your strategy has been selected, automated software will then execute trades in the mirror trader’s account with the aim of replicating results.
The Pros of Mirror Trading
Limit Emotions – One of the main reasons traders are choosing mirror trading is to limit emotions. This is particularly useful for new traders or those who find it difficult to keep their emotions in check. When you choose mirror trading, many factors will be pre-determined such as when to open a trade and when to close a trade. This removes some of the major stress of trading.
Live Results – Most trading programs do not release current results of their performance; however, mirror trading strategies often release daily performance summaries so you can see how a strategy is performing before you even use it.
The Cons of Mirror Trading
Changing Markets – Some strategies may only perform well in specific markets and with markets changing constantly, the strategy you select may underperform in this situation. You must make sure that the results of a strategy are tested in various market environments.
Risk Management – A trading strategy may show the outcome of the trades, but not the process. In other words, you need to make sure that your trading account can withstand the strategy that is used to achieve the results. For example, a high risk strategy may not suit your capital. Don’t only look at the end result when picking a strategy.
Complacency – Just because you have chosen mirror trading does not mean you can become complacent. You need to keep a close eye on the trades and your account. For example, any strategy you choose will continue to operate until you specify it should end.
Mirror Trading – Yes or No?
The decision whether to mirror trade is not to be taken likely. It’s not enough to pick a strategy and sit back expecting success. You need to understand the pros and cons and do your research about the performance of the strategy before you begin. Then, keep a close eye on the markets and your account at all times to manage your risk and improve your chances of success.
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