1. Choosing the most profitable strategy
Many investors choose a trading strategy for investing, based on the rating of its profitability, but this is not always the right decision. The rating is formed depending on the indicator (%) of the yield for a certain period (usually 1 month). The higher the yield - the higher the strategy’s position in the ranking.
Under such conditions, the first places can be occupied by traders with extremely aggressive trading strategies, which brought them significant profits over the past month. But you need to remember the rule: the higher the potential yield, the higher the risk. Thus, investing in such a strategy can be extremely risky, because there is a great chance to both quickly to make a profit, and quickly incur significant losses.
In the TOP-5 rating of the yield, trading strategies which showed good results only during the last reporting period of trading may appear. With investment in such strategies, it is worthwhile to be careful, since profitable results over a single month is not an indicator of stable success. For investment, it is recommended to consider strategies with a successful history of 12 trading weeks, so as to make an objective assessment in the long run.
Often the same trader can simultaneously use several trading strategies with diametrically opposite investment ideas. If one strategy shows a loss, then a strategy with an inverse correlation will show growth. This can allow a trader to always be at the top of the rating. Therefore, it is always necessary to pay attention to how a specific strategy behaves over a long time interval.
2. The choice of a trader with a Martingale strategy
A Martingale strategy is a transaction management system, the first stage of which involves opening a position with a minimum lot to buy or sell.
If the first action brought you a loss, then you need to open another position in the same direction, but with double the initial lot. . This process continues on until your order closes with a profit, after which you again change the direction of purchase and again open the order with a minimum lot. This strategy is often used by Roulette players.
How to determine Martingale's strategy?
The chart is smooth, resembling a ray. The yield of the strategy is growing smoothly over time. On the charts, it is common to see sharp drawdowns in the form of check marks and their quick recovery.
The danger of investing in Martingale's strategy is that the trader plays against the trend and, in the long-term fixation of the trend, the trader will open orders in the opposite direction, with increasing lots each time, as a result of which they will lose all of their capital. Investors will also suffer losses investing in its strategy, which did not have sufficient time to close their trades.
From the above, one of the advantages of investing using a RAMM account follows - the Investor is able to at any given time, (even if the transaction is open), to stop the trading and, if desired, withdraw all of their money – a feature which gives the Investor full control over the invested funds, unlike PAMM accounts.
3. Investing in one strategy
Investing all funds into one strategy is not safe, because if the managing trader makes a mistake, you can lose a significant amount of money. To avoid this, it is recommended to diversify the risks by dividing funds between several trading strategies of various managing traders.
4. Incorrect risk assessment of trading strategy
There are cases when an investor sees 2 trading strategies that show the same yield for the same period of time. The investor, determined not to delve into the further study of these strategies, chose one of them at random, without looking for any fundamental differences. However, it is necessary to take into account the size of the drawdowns of each strategy over a long time interval. The more often the drawdowns, the more risky the management of the strategy.
5. The company/trader does not provide a state sheet
When investing in PAMM accounts or giving their funds to portfolio management, the investor should familiarize himself with the state sheet (the history of all transactions made within the trading account) in order to understand what strategy the trader uses, what maximum drawdowns have been recorded, the duration of the strategy and the trend of trade, and to independently assess the risks of investment.
Some companies refuse to show state lists, arguing that they have a unique and licensed strategy. They can not show a state list, since there is a risk of copying of a successful trading strategy.
In fact, only primitive strategies are possible to copy; Trading conditions on the market are constantly changing, and with them, the management of strategies should also change. Therefore, either the company simply has nothing to show (there is no such successful strategy), or it wants to hide the genuine results of the strategy.
Should you trust such a company / trader? The answer is obvious.
When investing in RAMM-accounts, this process is considerably simplified, since the entire history of trading strategies is available on the platform in online mode, which allows you to fully familiarize yourself with the proposed strategies and make an informed choice.
6. Lack of understanding of market terminology
If you decided to invest in the FOREX market, then you need to know the basic terms of the market: what is a drawdown, what trading strategies exist and how they differ from each other, what affects the price of an asset, what is the estimated percentage yield when using a stable, profitable, moderate strategy, etc.
You can check the popular terms and their meanings on the "Glossary of Terms" page or find all the necessary information on the Internet.
7. Spontaneous choice of a broker
Do not choose a broker based on ratings on the Internet. It is not uncommon for brokers to buy places in ranking systems, which does not allow you to objectively look at the real situation on the market.
The broker may choose to ‘warehouse’ the trader's transactions instead of routing them to the market, as a result of which the trader, whose strategy you invested in, trades against a broker who is directly interested in that trader losing. Therefore, if you want to avoid such situations, we recommend that you choose a reliable broker with European licensing, which has agreements in place with major liquidity providers.
It will also be worthwhile to pay attention to the conditions provided by the broker to traders, since with the same strategy, but different brokers, the trader's final results will differ.
8. Emotional behavior
Drawdowns await you in any trading strategy, but their level will differ from the trader's strategy. The more aggressive it is, the greater the probability of a deep drawdown. However, you do not need to be too emotional and immediately withdraw your funds.
By investing in RAMM accounts, you can set the weekly level of permissible losses and set a profit level, upon reaching which you can suspend all investments for this strategy.
Recommendations for investing
- Choose strategies that are acceptable for you.
- Determine the size of your investment.
- Distribute the funds between your selected strategies.
- Set your acceptable risk levels.
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