What is Copycat Investing?
Copycat Investing also referred to as Coattail Investing involves a strategy where an investor replicates the investment concept of famous, wealthy and highly profitable investors that achieved a sustained sublime stock trading track record over years. Copycat Investors use the Securities Exchange Commission's (SEC) information about what stocks these investors invested in, to purchase and sell the same assets. Practically, a listed firm must disclose the names of shareholders holding 1% or more in the company to the stock exchanges.Copycat investors track this information and buy the same stocks for their portfolio under the assumption, the guru investor knows why he or she purchases or sells the stocks. While the feedbacks about the success of Copycat Investing are all over the board, there are certain techniques an individual stock trader can use to boost his or her chances of becoming a consistently profitable Copycat Investor. Bear in mind that not dissimilarly to other stock trading strategies, Copying the investment strategies of successful investors carries its own share of advantages and risks. You must define your financial goals and risk tolerance before looking into Copycat Investing.
COPYCAT INVESTING
Benefits
» Copycat Trading has plenty of benefits, especially for novice traders who were just starting out and could not accomplish with successful trading history, or want to delve into stock trading without mastering solid stock market knowledge and grueling efforts of conducting stock analysis or market news research. Trained traders can also benefit from Coattail Investing as well.» Copycat Trading relies upon another experienced and successful trader's trading skills that boils down to one gravity thing; the profit. By Following And Copying Experienced Traders, you can also learn about stock markets and improve your knowledge by time.
» With a wide array of stock gurus delivering buy- and sell signals for Copycat Trading, you can get access to multiple stock markets and trading strategies you have insignificant or no knowledge of.
» The technique of Coattail Trading entirely eliminates emotions from trading. It can be challenging to turn off emotions when you are risking your own money, and emotions can lead to unreasonable trading decisions. Copycat Trading sorts out this problem, especially if automated trading is deployed that certainly prevents your investment from being affected by emotions.
» Copycat Investing helps you to save decent amount of time. Because Coattail Trading can be fully automated, if you make your trades through a platform that allows for setting this option, you can trade even beside to your 9 to 5 job.
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Risks
Investing of any form inherently comes with risk and necessarily requires stock traders to perform their own due diligence. Copycat Trading is no exception. » The psychological risks, such as assuming no personal responsibility because you are copying a successful master traders' action is elevated among Copy Traders.» The most important risks of Copy Trading are that the successful investor might have completely different investment objectives and time horizons or the underlying stock has already moved to the top of its trajectory before you learn about master trader's investment.
» This is where latency comes into play. Latency, when it comes to Coattail Trading, is the delay in replicating the trades of a guru to the Copycat Trader's account. The key goal is to ensure synchronization between the professional trader's trading actions and trades of the Copycat Trader. If synchronization is disrupted by this latency, delays are triggered in trade execution so that you can lose.
» If you are in need of cash, you may need to liquidate your investment soon, whereas a master trader or institutional investor can hold the position for the long-term.
» Certain investments take longer to mature and return considerable profits. Impatient Coattail Investors who are eager to rake in profits fast may end up exiting their positions too early that will cause them to generate losses.
» If there are too many individual and institutional investors that are tracing what professional hedge funds managers are buying and selling, in addition many of them embrace Copycat Investing strategy, their trade execution may experience delays, while they may be held back from getting important information expeditiously, because in financial markets valuable information might become outdated within a very short time, even minutes.
» The major risk of Copycat Trading is that you might end up following a master trader that loses on his or her trade, rather than profits. A large trader's loss tolerance is obviously significantly higher than yours.
» Unless you use an automated platform that replicates the buys and sells of a successful trader - according to your settings - as soon as he or she announces their trades, you can be exposed to delays in copying these trades.
Have you ever heard? Short-term investments are usually too risky for Copycat Investing because the time gap between buy- and sell transactions is too short to replicate the trade and make sufficient profit, or profit at all.
Who should you follow and copy?
» If you're about to become a Copycat Trader, the best investors to start with are the ones with a proven track record of profitability, such as,» Successful Money Managers
» Buy-and-Hold Managers
» Activist Investors
» Successful and wealthy individual investors.
Is Copycat Investing my cup of tea?
You can't answer this question unambiguously. As Coattail Investment is 100% legal both individual and institutional investor can be engaged with it. According to studies the vast majority of Copycat Investors suffer a massive loss on regular basis, still some of them have made a fortune by Copying the portfolio of famous investors.
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How to become a Copycat Trader?
In retrospect Copycat Investors would routinely search SEC's regulatory filings from mutual fund companies to figure out which stocks are purchased and sold recently. Today, online investing research companies offer true alternative to this cumbersome task by tracking and disclosing the portfolio and trades of large investors and successful money managers.An upgraded type of Copy Trading is mirror trading, an internet-based methodology that allows an investor to link investment accounts to portfolios managed by other investors or professional traders, then according to your allocations, such as amounts, limits, it automatically mirrors every trading action made by them.
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How to succeed as a Copycat Trader?
A Copycat Investor should take into account the followings before trying to replicate the investment strategies of successful investors.1. Don't buy stocks blindly, always conduct due diligence on potential investments to be notified about danger signals to substantially reduce your risk exposure.
2. If you want to be successful in the line of Copycat Trading, exercise patience, and as a rule of thumb wait for the longest time possible before exiting your trades. Large investors' investments often may take 1 to 10 years to mature and end up with generating significant profits.
3. Don't be fearful about substantial drop or hike of stock price. Sometimes stocks price may rise of fall unexpectedly without reasonable causes that is often triggered by deceptive stock catalysts, events or general market conditions. Don't buy back or sell out your stock just because it dips or rises transiently.
4. You should follow those reputable investors only that maintain an outstanding track record over the years to increase the chances of successful Copycat Trading. Successful trading gurus often share their ideas in business journals or meetings, and finance websites and sometimes they disclose their portfolios and market predictions to the public, often with credible investment recommendations.
5. Never follow a single successful investor but track the portfolios of several ones in diverse sectors or industries. Diversification of your coattail portfolio can help to improve your chances to exit from your investment with notable gains and to reduce the risk.
COATTAIL INVESTING
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