Social trading increases knowledge sharing and the chances for success by enabling traders to view, share and even copy an expert's moves. Huge volumes of data and analysis of expert traders is available online making it a significant challenge to know the best traders to trust, and how to sift through the sea of information to find what is really important. Here are some pointers that can help you identify the top traders that become a valuable source of expertise to improve your trading performance.
1. Sorts Top Traders by level of risk - Identify the top traders that have similar goals, and risk levels to yours, and then select those traders that have trading behavior that matches your own personal style.
2. Check out the guru's following - Browse through the guru's profile and check out the number, diversity, trading strategies and success of the gurus' followers.
3. Evaluate the diversity of the guru's portfolios - You may think that a long-term trader with low leverage and sustainable gains is a low risk. However, if that trader is trading only one currency for example, British Sterling, the portfolio is more susceptible to short-term market changes.
4. Compare your guru with other market leaders - Pick a number of successful traders from the "Top Traders" list, and then compare how your guru matches up with other gurus who made similar Investments over the same time frame. This will help flag traders with a high level of expertise that are performing consistently better than their peers.
5. Analyze your guru's P&L - Follow the peaks and valleys of the guru's performance curve over time. It is recommended that the time evaluated be a minimum of one year. Can you see an improvement in performance of specific trades over time?
6. Pick a guru close to home - There are advantages to consulting with someone who speaks your language and lives in your time zone. You may also want to consider picking a guru who lives close to your top pick for a currency. For example, someone who lives in Sydney may be more up to speed regarding public policy that can impact the value of the Australian dollar.
7. Evaluate the level of interaction - See how communicative the guru is with existing followers and the quantity and quality of online conversations being held and helpful feedback provided. This will be a good indication of how comfortable this expert is with sharing tips and tricks.
8. Diversify your people portfolio - Similar to an investment portfolio, it is best to follow a mix of traders that can help minimize risk. For new social trader, it is recommended that the portfolio be built from a minimum of five experts so no one single guru can have a dominant influence.
These basic tips are just a beginning. The best part of social trading is that a wealth of information always available 24 hours a day 7 days a week. Who you follow, how much you learn, and how you invest is up to you.
Now all you need to do is click away to begin building your own people-based portfolio!
Johnathan Assia, its co-founder and CEO of e-Toro
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