How to identify traders with potential on eToro

How to identify traders with potential

If you are already familiar with the concept of social trading or have just been introduced into the world that enables you to essentially copy a successful trader, there is one key question that bothers everyone and that is how exactly to find a trader with potential. And by potential, we mean traders for whom a “good” period is yet to come rather than the other way around. Although there is nothing certain about trying to predict who will be a good trader that you might want to copy, there are some common characteristics for traders in their preliminary stage that may point to a promising future. In this article we set out to expose some of the more important ones.

The Wonders of Consistency

One of the first and easily the foremost thing that traders with potential all tend to have is the strong habit of creating consistency. In technical analysis that would be called a trend line, but when it comes to a trader the same path that is labeled a trend line in technical analysis reveals a very important sociological behavior of the trader. It reflects the trader with a constant strategy, whether it’s taking short term opportunities in similar patterns or peaking up assets at low prices. The result in his performance is the same; replicated strategies create an ascending trend line of performance and reflect and provide assurance that the trader is focused and has a sound game plan.

How to Use the Trend Line

For example, as seen in the above trader, the respective performance of this specific trader shows a high degree of consistency. His bottoms are set in a linear outlay, meaning he trades in very predictable cycles; this indicates a trader who is very calculated and follows a constant pattern. On the other hand, the upper line trend, which indicates a linear proportion between the trader’s peaks, is equally important. Why? Because if the trader trades, more or less, at a stable leverage his upside gains will more or less be symmetrical. On the other hand, and this could be a warning sign, equity simply means that the trader has increased his leverage and therefore, while his profits rise with every trade, the risk of a crash in profits is substantially higher. This might also mean the trader has become too confident, usually a result of taking upon more risk, and this behavior might change for the worse, with the trader becoming more impulsive, meaning that, all in all, this is not the same trader you first started to follow.

A Word on Bargains

Besides those advocates of consistency, there is another type of trader worth watching and who can be found where you least expect. This may sound counter-intuitive, but sometimes the traders that have been brutally chopped up, i.e. those who crashed to zero, tend, in the aftermath of their crash, to implement some powerful hard-learned lessons. Moreover, their deposit base is now smaller and they have fewer followers, and much like an undervalued stock, the lessons that they learned often times can bring them around for a strong rebound which makes them an interesting bargain. Yet a word of caution is warranted; many still pose a significant risk and may crash once more. Therefore, they should be considered carefully. Moreover, after quick gains of those back from the abyss, take a moment to pause and reflect on whether or not it’s time for you to cut risk off the table. Once again, there is a reason that a bargain is a bargain; you just have to decide if the risk of losing is worthwhile.

Overall, there is no one formula to identify good traders with potential but some of the techniques focusing on psychology might be those most worthy of checking out, as a trader’s mindset is key to performance. Just some food for thought before picking the winning horse.