THE PREMISE OF TRADE MIRRORING
By definition, the mirror trading method (also referred to as Signals) allows Traders/Investors in financial markets to select a trading strategy and to automatically “mirror” the trades executed by the selected strategies in the respective brokerage account.
The Trader/Investor can select strategies that match their personal trading preferences, such as risk tolerance and past profits. Once a strategy has been selected, all of the signals sent by the strategy will be automatically applied to the client’s brokerage account. No intervention is required by the client as all the account activity is controlled by the platform.
Clients may trade one or more strategies concurrently. This enables the trader to diversify their risk while maintaining trading control of their account.
Mirror trading is sometimes also referred to as copy trading although copy trading differs slightly from mirror trading in the way that accounts are linked.
Operational Nuts & Bolts
As savvy Traders/Investors, we strive to find great Signals so that we may reach our financial goals as efficiently as possible and, in doing so, we want to work within with shortest time periods prevailing. We want pure profits in great quantities and on a regular basis with consistency unmatched. These are the spoils of the Markets when things are going smoothly and the Market is predictable enough for most systems to prosper allowing all involved to propel one another by leaps and bounds. We get a little spoiled, from time-to-time, with our Signal choices whereby we find a Signal Provider that is really on their mark and has gains seen nowhere else but in Forex. We latch on and ride the profit train for as long and far as it will take us and, no matter the length of time in service, it’s always too short. These times are wonderful and we do so enjoy the flurry of activity surrounding them when we are all sharing the profitable gains that encompass such affairs. But, this can be a delusional perspective if one is new to this type of investment program.
As our tenure and experience grows on these endeavors, we have to remain diligent in our safe use of Trade Mirroring. It is my opinion that every single system available will fail at some point due to a multitude of factors. It may be an EA that works well in some market conditions but when the market conditions change, as they do, the EA may not change with it. It may be a professional Day Trader monitoring the fundamental and technical reigns of current financial affairs that experiences fatigue from the long hours required to run a successful Signal account. It may be a sudden and unexpected Market movement like a ‘flash crash’ as we recently witnessed on the GBP pairings. There are many reasons why good Signal accounts may end and each is unique and each has common elements of potential failure but you have to know what to look for before it’s too late.
Life Cycle Phases of a Signal
Each system has a ‘life cycle’ phase running from the Beginning, Middle, and the inevitable End. Understanding where your chosen Signal is on this cycle is essential and can be the difference between making money and losing it. Staying one step ahead is not impossible even with Markets showing turmoil as we have recently seen. We must remain diligent in our managerial responsibilities as Investors using the tools and strategies of Signal based accounts. Understanding that as you monitor the top trending Signal accounts on any given community websites, you are already witnessing this ‘life cycle’ in full effect. If a Signal has caught your attention, it’s likely because it is working successfully and booming with profitable gains. Our intention is to find as many of these types of Signals as quickly as possible and capitalize on each. But where then are we in the ‘life cycle’ of the Signal at this moment?
The Beginning of the ‘life cycle’ phase for any given Signal is a critical time. As we are not concerned with Signals that fail in the beginning, we will bypass that topic accordingly. For those systems that are successful, we see many flourish during this time with a chosen strategy. Some will continue the same methodology with similar results continuously. Some will change their strategy after becoming established with their gains in hand and, yet still, some will show multiple variations that accelerate them into the upper rankings where we find them. The count here is endless but somewhat predictable, especially when monitoring this history through the graph systems where these Signals are posted.
The next ‘life cycle’ phase is that of the Middle. Finding the border between these phases is quite tricky and most of the time blurred. The transitional time between phases is not really that important unless you see significant changes in strategy. This is the time where the Signal does the majority of the work and the time in which we want to get on board. While we are in the Middle phase of the Signal’s life cycle, we will find that we do not need to interact nearly as much and monitoring becomes and easy affair. The majority of the trading is done now and propels the Signal account forward with steady bliss. If changes are required due to Market conditions, this is the time we will expect to see the implementation of progressive refinements. As with any healthy trading account, losses are normal and help redirect back to the correct and profitable path once more so we expect to see this as well without getting overly excited.
Also, we will expect to see consistency on a regular basis. The past results should match our expectations for the type of gains we are receiving. On a weekly basis, if not sooner, this is the time we are evaluating the production value of our Signal to ensure that we are getting enough financial gain to keep this a viable option moving forward. If productions drops off, we have to re-evaluate our position here to determine if continuing its’ use is the best and most lucrative option. As this is the best time between all cycles, try to remain subscribed during this phase for as long as possible to reap the most benefit you can because the next phase is coming sooner than you think.
The End is as unique as the individual Signal itself. Many times we think of this transition as something negative but the End does not necessarily mean failure. The End can be a successful Signal coming to a halt. If the Provider of a successful Signal decides to withdraw all of their profits and stop trading, this is the end and we will all be sad to see them go but we will all walk away with money in our pockets so the celebration is bittersweet. Sometimes when a cycle ends, it’s quick with a sudden catastrophic movement; other times it’s a gradual descent into more and more negative results creating just cause to stop using it. The end will come for each and every single Signal out there, knowing when it is coming and recognizing the key elements involved is essential.
A Signal failing to perform is easy to recognize and so we can Pause or Disconnect from it in this case. When there are signs of more and more negative traits being accumulated we simply stop using the Signal, if not temporarily, then permanently. It is a recommended practice to Pause firstly and monitor the progression of the next series of trades to evaluate the disposition and overall production we are facing. If our expectation of this Signal is not met, we walk away from this Signal and, in so doing, this is the End.
A Signal that starts trading erratically or more aggressively can lead to its’ own demise and quickly. When we see evidence of a strategy change by lot increments, pairing changes and/or quantities of lots utilized, we are seeing a potential threat and the End phase may be fast approaching. Many times in these cases, we will see the Equity lines dropping away from the Growth lines on our respective charts. The DD will start increasing according to this new riskier behavior and these are all huge warning signs. As an Investor, if you are unsure about what your Signal is doing, it is always best to Pause or Disconnect rather than to put your hard earned money at risk.
Pause or Disconnect?
So, you’ve reached the End phase of the ‘life cycle’ of your Signal. Now what??
If you have trades open and see that your current Signal is not performing as you expected it to and you suspect the end is near, rather than waiting for a Margin Call to collapse your account, you can take action. This proactive nature can save you thousands of dollars and, usually, the faster you react the more money you can save. You always have the choice to Pause or Disconnect from your chosen Signal no matter what circumstance you find yourself. As each has a different resulting consequence, understanding the choice is key.
Pausing your Signal will disallow any future trade positions from being executed. It will allow the Signal to continue managing all existing trades in play with the only restriction of opening more. If you choose to Pause with trades or without trades, the effect is the same.
We would typically use this feature if we like what our Signal is doing, but we don’t want any new trades added to our current account. Or, perhaps we are unsure about our Signal progress and we want to stop trading and watch how it performs on its own for a little while. This is a great option for that.
This procedure is easily done and undone and is a commonly utilized tool.
When you choose to Disconnect, you are taking back all of the authority you previously granted to your Signal. In this stage, you are taking over the controls completely and removing all managerial aspects previously controlled by the Signal.
Disconnect with No Open Trades
If you have no open positions and you recognized the demise of your Signal early, you are in the best position available. You can simply Disconnect your Signal from your account using the tools with which you are familiar. This concludes all business affairs with this Signal and your account is free to use for your next and better Signal choice.
Disconnect with Open Trades
With open positions remaining, you are now going to take over manually. Depending on the currently displayed choices of your most recent Signal, you may or may not have SL or TP considerations already in play. You will need to manage these so as to create the best case scenario for your given situation. This may mean removing them or placing them to your best advantage. Knowledge of setting trade parameters is a must in this case. If you are new, seek the guidance of your local support Group or Open Forum and the first available member will ensure your success in your set-up.
This is not an overly complicated solution to a dying Signal, it just means that you have to take additional steps to see the fruition of all open positions. There are many considerations in doing this and each must be monitored and adjusted accordingly. The benefit for following this line of action can be profitable for you while your old Signal succumbs to a Margin Call and fails, thus leaving you in a more advantageous position.
In short, we have an expectation using Signals as a financial vehicle for our investments. While this is an amazing opportunity to make financial gains unseen anywhere else by any other financial institution outside of Forex, there are concepts of financial safety that each of us has to work within. We must police our own accounts and do this often. We must manage and evaluate our Signals with routine schedules. We must monitor the progress of everything we do here to make sure that we are on track to steady and healthy gains. The more involved you are, the greater your chances of success as you will be more inclined to take action earlier which will equal security and longevity with your safest choices.
Contributing Writer: Lord John Robert Berendt Von Leviathan III